ASSA 2018 part 2: value, profitability and crises

At ASSA 2018, away from the huge arenas where thousands listened to the millionaire guru mainstream economists speak, were the sessions under the umbrella of the Union of Radical Political Economics (URPE), where just handfuls heard papers from a range of heterodox and radical economists. These sessions were a mixture of debate on Marx’s value theory (among Marxists) and its dismissal by followers of Piero Sraffa. But there was also some very interesting research on the nature of capitalist economic cycles and the causes of crises, including the 2008 crash and the Great Recession.

Supporters of ‘neo-Ricardian’ theorist, Piero Sraffa, had a session aimed at comparing Marx’s analysis of capitalism with their own hero. In his ‘point by point’ comparison of Marx and Sraffa, Robin Hahnel explained that Marx was the “great grandfather” of the critique of capitalism, but “a great deal has happened since Marx died in 1883”and it was time to acknowledge that “Marx’s attempt to fashion a formal economic theory of price and income determination in capitalism based on a labor theory of value, and elaborate a Hegelian critique of capitalism, can now be surpassed”. Now “a number of distinguished Sraffian economists have used modern mathematical tools to elaborate an intellectually rigorous version of Sraffian theory which surpasses formal Marxian economic theory in every regard”.

To justify this claim, Harnel then offers the usual set of neo-Ricardian arguments against Marx’s value theory (first raised by Ian Steedman in 1977): values are not necessary to explain prices or profit under capitalism, indeed they are redundant; Marx’s value and profitability theories are empirically refuted; and anyway, Okishio has completely rebutted Marx’s theory of crises based on the law of the tendency of the rate of profit to fall.

There is no room in this post to respond properly to these traditional arguments of the Sraffians. Instead I refer readers to the battery of work done by Marxist economists over the last 40 years that show the logic of Marx’s theory, expose the unrealistic assumptions in Sraffa’s approach and provide empirical support for Marx’s laws of motion under capitalism. I have only to mention but a few: the work of Husson, Carchedi, Freeman, Kliman and Moseley among many others.

Indeed, at ASSA, in other sessions Marxist value theory was convincingly expounded. Riccardo Bellofiore took us carefully on a tour through Marx’s value theory from various angles. And see Bellofiore’s account of Sraffa from another session.

And Fred Moseley recounted his important summary of Marx’s value theory and laws of motion in his book of last year, Money and Totality. His book offers a firm critique of Sraffian theory as well as a convincing interpretation of the so-called transformation problem of ‘converting’ labour values into the prices of production – an issue that the Sraffians and all critics of Marx’s value theory latch onto.

But Moseley was firm in his view that “Marx’s theory of capitalism is internally logically consistent. The long-standing and widely-held criticism that Marx “failed to transform the inputs” in his theory of prices of production in Volume 3 is not a valid criticism. Marx did not fail to transform the inputs because the inputs are not supposed to be transformed. The inputs of constant capital and variable capital are the same actual quantities money capital advanced at the beginning of the circuit of money capital to purchase means of production and labor-power which are taken as given”. So prices of production can be derived from total surplus-value and general rate of profit in a logically consistent way. Marx’s value theory is both necessary and sufficient in explaining market prices, indeed better than mainstream neoclassical marginalist theory or the ‘physicalist’ production equations of Sraffa.

As I said, the debate between Marxists and the neo-Ricardians/Sraffians is now over 40 years old. It boils down to whether you think Marx’s value theory and his critique of capitalism is logically valid. Marxists have, in my opinion, conclusively won that debate.

And at ASSA, yet more convincing empirical work was presented. In particular, David Brennan presented an analysis based, he said, on using Marx’s law of profitability and Michal Kalecki’s macro identities. Brennan offered “a new methodology based on the work of Kalecki to provide empirical estimates of profits and the various components of realization, profit rates, and the organic composition of capital. These estimates provide new insights into the Great Recession and the “recovery.”

Now readers of this blog and some of my research papers will know that I have serious criticisms of the Keynes/Kalecki macro identities as a useful tool in explaining crises under capitalism. In essence, as Brennan also shows when he goes through the macro categories, the capitalist economy’s driver can be boiled down to profits=investment identity.

Why? Because if we assume workers in general consume all they get and capitalists save all they get, while governments balance their books and external trade is in balance, then all that is left is profits=investment. The Keynesian/Kalecki conclusion is that investment drives or creates profits based on the view of the ‘effective demand’ of capitalists. But this is back to front. The Marxist view is that profits drive or create investment, not vice versa. And there is plenty of empirical evidence to confirm the Marxist view.

But Brennan wanted to make the point that crises could not be caused by just a fall in the rate of profit; slumps also depend on the realisation of the mass of profit. “Marxian theory was not wrong about the causes of the Great Recession, although various Marxian theories emphasized different aspects of the crisis. In the end, the rate of profit matters for the trajectory of the economy. But to understand crises like the Great Recession, profit rates alone are not sufficient. Crises, unlike typical recessions, are sudden and often unforeseen. The Great Recession was both a profit rate and a profit realization crisis.”

As Marx put it: “the so-called plethora (overaccumulation) of capital always applies to a plethora of capital for which the fall in the rate of profit is not compensated by the mass of profit… and “overproduction of commodities is simply overaccumulation of capital”. It is precisely when the mass of profit stopped rising that the Great Recession ensued.

And this is what Brennan finds in the US data using his combination of a Marxian rate of profit and ‘Kalecki’ profits. The profit rate fell in the 1964-1980 period and then rose in the neoliberal 1980-2006 period, fell during the Great Recession and recovered subsequently. These results repeat what a host of studies have already shown.

Brennan now adds the impact of the movement in the mass of profits (a la Kalecki) and finds that the Marxian profit rate peaked well before the global financial crash and then was followed a fall in the mass of profit and investment. “It was the significant dip in total profit flows coupled with the low rates of profit, accumulation and exploitation that formed the Great Recession.” Exactly: below is my version.

Brennan adds a slightly different interpretation: “The rate of exploitation up to that time peaked during 2006Q1. Yet profit flows continued to rise until 2008Q3. Therefore, the financial sector was essentially trying to realize profit gains that were not there in real production. This is one reason why the housing boom could not continue much past the end of 2005. While the crisis was indeed precipitated by the housing collapse, the collapse was brought on by difficulties of both profit production and realization.” Yet, Brennan’s Kalecki analysis confirms the Marxist analysis already presented by Carchedi, Freeman, Kliman, (myself) and many others.

Marx’s crisis theory stands out as mainstream economics flails about, unable to forecast or explain the global financial crash, the ensuing Great Recession and the Long Depression that has followed.

145 Responses to “ASSA 2018 part 2: value, profitability and crises”

Were there any papers that attempted to correlate the rate of “super-exploited” labor (i.e. primally accumulated labor) in capital’s industrializing peripheries and the rate of profit of corporations which (through direct and indirect investment) capture the products produced there? In other words, any attempt to show why “globalization” has failed…?

Again the solutions suggested above for the transformation problem are incomplete. Marx did not go far enough with his example, which was after all an example designed to show by how much prices had to deviate from their underlying values to arrive at an average rate of profit. In Chapters 11 and 12 of Volume 3 are to be found the clues to complete the full conversion of values into prices such that the resulting prices of production not only reprice outputs but inputs as well. This cannot be achieved without repricing the five capitals Marx begins with, the necessity of which seems to escape all the authors of the various solutions. https://theplanningmotivedotcom.files.wordpress.com/2015/09/transformation-solution-pdf.pdf“>TRANSFORMATION SOLUTION pdf

Finally the conversion of a relative fall in the rate of profit into an absolute fall in the rate of profit is a function of turnover, because it requires a fall in the velocity of turnover to accomplish this conversion. This has been proven empirically by the turnover formula which shows the collapse in turnover before and during 2008, as well as the run up to the more minor profit collapse at the end of 2015.

They also fail to account for the fact that Marx’s example with the five spheres deals in percentages, but to bring about the change in prices of production in the way Marx and Engels describe, Capital itself must move from one sphere to another, so that the supply of commodities in low profit spheres decline (market prices rise to price of production) and supply of commodities in high profit areas rise, so that market prices fall to price of production. So, the actual absolute amounts of capital in each sphere must change.

Moreover, its impossible to know exactly how much capital must move from low profit area A to high profit area B, to bring about the required change in market prices, without also knowing the price elasticity of demand in both spheres. For example, if high profit area B produces some necessity such as bread, a large increase in the amount of capital going to it, to raise supply may cause prices to fall only marginally, as the additional demand is quickly soaked up by demand. If, however, sphere B produces some luxury good, for which there is only limited demand, even a small increase in the capital employed in that sphere may cause prices there to fall sharply.

Nor, as I have set out elsewhere, is there any logical reason why the amount of capital that needs to leave sphere A to cause market prices to rise to price of production, should be equal to the amount of capital that must migrate to sphere B to cause the market prices there to fall to the price of production. It is at least just as likely that an amount of capital will either move to some other sphere, or else be held as money-capital, or be converted into money revenue.

The 2002 edition of Robin Hahnel’s “The ABC’s of Political Economy” was the first economics text I read cover to cover, so I had a pretty high opinion of him. Really disappointed that he doesn’t seem to have read anything from the value theory debates since then, let alone Kliman’s essential summation. Or, heck, even from the 90’s; [i]Marx and Non-Equilibrium Economics[/i] was 1996, and [i]Frontiers of Political Economy[/i] was 1991. But he’s still trotting out Okishio in 2018? What a shame.

1. It was obvious that Sraffians were a fraud in the 1970s. What does that say about the “marxians” endlessly “debating” them?

2. A “pons asinorum” for understanding the essence of the Sraffian fraud is understanding the absurdity of Okishio’s “theorem”.

3. I haven’t finished Fred Moseley’s book but my impression was that he did at least grasp the obvious fact that Marx’s reproduction schemes were expressed in money.

4. After noticing that, one should go on to noticing that there is always a range of technologies available. The technologies and inputs actually used will depend on average on the average rate of profit applied to the average capital invested and values of inputs including wages. My eyes glazed over so I don’t know whether he did get that much further but I did not gain that impression while quickly skimming through wondering why it took several decades and an entire book to notice that the reproduction schemes were expressed in money. (OK Marx’s insomnia when writing those chapters did make them unreadable, but still, the central point was obvious…)

5. Given a range of available technologies, some more capital intensive than others, accumulation will naturally move towards those with a higher organic composition becoming relatively more profitable as wages rise and profit rates fall. This shift in technologies in response to higher wages and lower profit rates, was clearly explained by Marx as early as 1847 referring to the fact long noticed by Ricardo and others that machinery which cannot be used while wages remain low suddenly gets implemented when unemployment dries up and wages are driven up and profits down, thus recreating the necessary reserve army of unemployed.

6. It isn’t new inventions that drives the rising organic composition of capital but the existing range of available technologies responding to higher wages – making Okishio’s “basket” theorem nonsensical.

7. Obviously nothing about “values” and “averages” can in itself explain crises which are precisely about disequilibrium not about purely abstract imaginary equilibrium averages.

8. Maksakovsky gave a clear account based on the work done by Marx, of how the movement of prices above and below values interacts with changes in valuation of fixed capital to produce the business cycle and its regular crises.

9. I see no indication that any of these papers have even heard of such a theory, let alone read it, let alone understood it, let alone refuted it or developed it.

10. Instead we are being told about a theory that a fall in profits leads to a crisis. How on earth this is supposed to be more than a definition of a crisis escapes me.

6. Correct, it isn’t new technologies that drive the change in the organic composition, it is accumulation itself, as expressed and driven by competition.

8. Maksakovsky’s -The Capitalist Cycle- is indeed a brilliant exposition. So brilliant you can miss the fact that Maksakovsky is arguing that the cycle from expansion to contraction is driven by…..consumption, by the disparity between production and consumption.

10. The issue is not a theory that says the fall in profits leads to crisis. The issue is that the theory explains WHY profits fall, must fall. Declining profitability, like overproduction, actually AS overproduction, is immanent to capital accumulation.

5. I agree that real wages have risen along with profits and that Marx explained this. Worth pointing out as bizarrely many don’t. My intended reference was to the rise of both “wage share” and real wages at expense of “profit share” and real profits when pool of unemployment dries up.

6. Yes. Glad we are agreed that it is driven by accumulation and expressed by competition. I have not been following “marxian” discussions for decades. Can you tell me whether that view is now widespread? My impression from 70s was that the they just didn’t get it and only referred to new “inventions” with strange explanations why they had to tend to be labor saving rather than capital saving and why competition would force their adoption despite resulting in lower rate of profit.

8. I will have to write a detailed analysis of underconsumption elsewhere as it does seem to have been misunderstood by the few that actually read Maksakovsky.

Briefly, there are some confusing references (as there are in Marx himself) but the actual content is unambiguously an (inevitable) disproportionality theory and Maksakovsky explicitly joins Marx (and Hilferding) in explaining the absurdities of underconsumption theories (1 underconsumption by workers is common to any system of exploitation whereas are crises specific to capitalism, 2 actual dynamics are rise in wages followed by crash whereas underconsumption implies such a rise should postpone crash, 3 based on misconceptions explained by the reproduction schemes).

“Disparity between production and consumption” is in itself just a disparity between inputs which are “consumption” and outputs which are “production”, ie between demand and supply – ie a divergence of prices from values. No implication in itself about consumption by workers and accumulation by capitalists. It applies to both Departments with the lead taken by Department I that does NOT produce “consumer goods and services”. The disparity between production and consumption noted by Maksakovsky involved initial underproduction in Department I (due to lag in supply coming on stream long after demand for the inputs to build new plants driving up prices) combined with insufficient demand for means of production in Department II (and alternating with opposite excess and insufficiency in other phases of the cycle).

This is plainly a disproportion theory not an underconsumption theory. Department II enages in productive consumption of the output of Department I and the output of Department I is largely for consumptive production of labour power in both Departments (plus unproductive consumption of capitalists and their retainers). Main disproportion is between actual investments in production of fixed capital financed from depreciation and accumulation an the sudden depreciation and wave of consumption of replacements with new technology becoming more profitable than old following a crash in prices and rate of profit.

10. A long term tendency for the rate of profit to fall is not an explanation for a rate of profit that regularly goes through a cycle of rising to a peak in a boom and collapsing to a trough in a depression and then picking itself up again. Announcing every so often that there is, has been, or will be a crisis because profit are low, were low or will be low merely repeats the description of a crisis without offering anything resembling an explanation. (There may be some accompanying explanation, but it has certainly escaped me.)

It is that periodic wave of fixed capital investments in more capital intensive technology after a crash that sets the stage for the next cycle to be at a higher organic composition and lower average rate of profit. This cycle explains the LRTFRPF not the other way round.

Specifically, what do you say is the explanation for profits regularly RISING in subsequent cycle? It isn’t a theory of the cycle without that. (LRTFRPTF would explain not reaching the same height as before and/or falling to greater depth than before, but does not directly shed any light on the cyclic movement let alone the crises in that cyclic movement).

6. Can’t tell you if the view is widespread because I really don’t follow Marxist discussions outside of Michael’s blog. He might be able to tell you.

8. Very interesting and worthy of a much more detailed investigation. That being said, I think Maksakovsky’s presentation is the best I’ve read on the nature, and the source, of the cycle. Agree that Marx himself has certain ambiguities about underconsumption. Agree also on the “absurdities” of the underconsumption argument. However I think an argument can be made that “disproportionality” is at root an argument analogous too, if not derived from an underconsumption position.

10. There are: the structural tendency of the rate of profit to fall; , the “offsetting tendencies;” the actions by the bourgeoisie to implement the “offsets;” the recovery of profitability; usually to a level below that of the previous peak, and thus the repetition of the process– itself a cycle.

This: “It is that periodic wave of fixed capital investments in more capital intensive technology after a crash that sets the stage for the next cycle to be at a higher organic composition and lower average rate of profit. This cycle explains the LRTFRPF not the other way round.”

I agree with in total.

At the same time, my explanation for the recovery is pretty much the above, with the initial introduction boosting rates of profit as lower production costs transfer profits from “older” to newer [in terms of technology] enterprises, and then overproduction sets in, see for example the boom and bust history of semiconductor fabrication and sales.

I think there is an intersection, a conjunction so to speak, between the longer term tendency of the rate of profit to fall, i.e. the period since 1970, or 1973, and short term cycles where fixed capital investment leads to overproduction and the immediate decline in profitability. Again, see the intersection of these forces in the history of semiconductor fabrication and sales. IMO, I think that’s what Marx was getting at in Volume 3, and the Grundrisse.

“Marx did not fail to transform the inputs because the inputs are not supposed to be transformed. The inputs of constant capital and variable capital are the same actual quantities money capital advanced at the beginning of the circuit of money capital to purchase means of production and labor-power which are taken as given”. ”

Mosely is wrong here. Marx and Engels DID realise that inputs had to be transformed. Marx makes that clear in a number of places.

For example, he says,

“The foregoing statements have at any rate modified the original assumption concerning the determination of the cost-price of commodities. We had originally assumed that the cost-price of a commodity equalled the value of the commodities consumed in its production. But for the buyer the price of production of a specific commodity is its cost-price, and may thus pass as cost-price into the prices of other commodities. Since the price of production may differ from the value of a commodity, it follows that the cost-price of a commodity containing this price of production of another commodity may also stand above or below that portion of its total value derived from the value of the means of production consumed by it. It is necessary to remember this modified significance of the cost-price, and to bear in mind that there is always the possibility of an error if the cost-price of a commodity in any particular sphere is identified with the value of the means of production consumed by it. Our present analysis does not necessitate a closer examination of this point. It remains true, nevertheless, that the cost-price of a commodity is always smaller than its value.”

It is for that reason that Engels says in his Supplement that the Marxian Law of Value (by which he means the determination of prices by exchange-value) ceases to operate from the 15th century, i.e. from the start of capitalist production. He says, that for the reason Marx outlines above, which is that as soon as capitalist production begins even in one sphere, prices in that sphere are increasingly determined by price of production, and because the outputs of this sphere form the inputs of other spheres, still not subject to capitalist production, including the production of means of consumption for workers, the output prices of these non-capitalist producers itself no longer is purely determined by exchange values.

Marx elaborates on this point later, in relation to wages and wage goods. He says, in Chapter 12,

“It is therefore possible that even the cost-price of commodities produced by capitals of average composition may differ from the sum of the values of the elements which make up this component of their price of production. Suppose, the average composition is 80c + 20v. Now, it is possible that in the actual capitals of this composition 80c may be greater or smaller than the value of c, i.e., the constant capital, because this c may be made up of commodities whose price of production differs from their value. In the same way, 20v might diverge from its value if the consumption of the wage includes commodities whose price of production diverges from their value; in which case the labourer would work a longer, or shorter, time to buy them back (to replace them) and would thus perform more, or less, necessary labour than would be required if the price of production of such necessities of life coincided with their value.”

This is why the amount of surplus value may be different in a regime where prices of production rule rather than exchange-values, and why, therefore, the rate of profit may also differ, although the total value of production will remain the same under both regimes.

Mosely is also wrong in his argument, because for Marx it is not the money prices at the start and end of the process that is decisive. Marx makes clear that his use of money prices here is only a use of money as unit of account. The money prices are only monetary equivalents of the actual physical use values that must be reproduced as part of this process of social reproduction. If production is to continue on the same scale, if social reproduction is to occur, it is the physical use values that must be reproduced, not amounts of money.

He says,

“In calculating the aggregate turnover of the advanced productive capital we therefore fix all its elements in the money-form, so that the return to that form concludes the turnover. We assume that value is always advanced in money, even in the continuous process of production, where this money-form of value is only that of money of account. Thus we can compute the average.” (Capital II, p 187)

Marx repeatedly points out that the actual money prices paid for inputs (historic prices) are irrelevant in this context, precisely because changes in social productivity causes the actual value of the commodities that comprise the capital to change, amd it is their value that is advanced to production, not their historic price. The value advanced is not the historic price, but the reproduction cost of the consumed capital. As he says in Capital III, Chapter 49, it is the physical use values that must be reproduced, not simply amounts of money-capital.

“This entire portion of constant capital consumed in production must be replaced IN KIND (emphasis added). Assuming all other circumstances, particularly the productive power of labour, to remain unchanged, this portion requires the same amount of labour for its replacement as before, i.e., it must be replaced by an equivalent value. If not, then reproduction itself cannot take place on the former scale.”

And he repeats the same point later.

“In so far as reproduction obtains on the same scale, every consumed element of constant capital must be replaced in kind by a new specimen of the same kind, if not in quantity and form, then at least in effectiveness. If the productiveness of labour remains the same, then this replacement in kind implies replacing the same value which the constant capital had in its old form. But should the productiveness of labour increase, so that the same material elements may be reproduced with less labour, then a smaller portion of the value of the product can completely replace the constant part in kind. The excess may then be employed to form new additional capital or a larger portion of the product may be given the form of articles of consumption, or the surplus-labour may be reduced. On the other hand, should the productiveness of labour decrease, then a larger portion of the product must be used for the replacement of the former capital, and the surplus-product decreases.”

And, indeed, its because of the tendency for social productivity to rise, so that the value of the consumed capital declines that the rate of profit rises, as Marx describes. As marx describes in Theories of Surplus Value, Chapter 12 et al, these changes in the value of the commodities that comprise the constant and variable capital, thereby affect the process of social reproduction, in the ways described briefly above.

If social productivity rises, so that the value of raw materials, for example falls, the same quantity of material can be replaced “in kind” with the expenditure of less labour, so that a given quantity of capital will purchase more of these commodities, and leave capital released to purchase the additional labour-power required to process it, and vice versa. As Marx says as far back as Capital I, it is the technical composition of capital that is decisive, because it is the technical composition not the value composition that determines how much labour is required to process a given mass of material, and it is the quantity of labour employed which in turn determines how much surplus value is produced, for any given rate of surplus value.

I find it strange that marxists should be debating keynesians (or ersatz Keynesian Kaleckians) over what determines which–i.e. profits determine investment (Marxists) or investment determines profits (keynesians). Data is clear that both determine each other: profits drive investment (although studies show conclusively real asset investment is financed less than 35% by profits), but investment also determine profits. This poses a problem for Marxist falling rate of profit enthusiasts. What volume of profits is driven by investment? If investment in part determines profits, then it is investment that is determining investment to some extent. Marxist economists attempt to solve this mutual determination by literary analysis–i.e. by trying to find some secret gem of causation somewhere in Marx or other contemporary Marxists’ works. What we get are constant line-graphs showing correlations (not causation) between profits (however defined) and real asset investment (usually net private domestic investment data). That tells you nothing about causation. If you want to solve the mutual feedback determination effects between profits-investment, it can only be done mathematically. A time series for each variable (profits and investment) via what’s called vector autoregression, combined with an analysis of lagged covariance analysis, will give you a quantitative value of how much profits determines investment, and vice versa, over a given period of time (let’s say 1995-2017 in the US so that two major recessions, and the coming next soon, are included). But that still leaves a dilemma for the falling rate of profit (or volume of profits) arguments for business cycle determination. Profit rates or levels do not determine solely business cycle dynamics. But then in my reading of Marx that never was his intent to explain short term business cycles via falling rate of profit theses (which he never felt was complete enough to pubish as well). Marx wrote of mid-19th century capitalist dynamics. Keynes of mid-20th century. This is the 21st century. Time that Marxists (and Keynesians) came up to speed on the changed structure and dynamics of 21st century capitalism. Neither of whom (Marx or Keynes) understood the new role of financial asset investment (fictitious capital or speculative investment) in disrupting the reproduction of capital cycle. Those interested may read my forthcoming contribution to the ICT journal in Beijing for clarifying all this.

“Marxist economists attempt to solve this mutual determination by literary analysis… by trying to find some secret gem of causation…”

…Thanks for giving a layman (a retired English teacher) an opening in which to say a few words that obviously have nothing to do with sophisticated vector autoregression and lagged covariance analyses of modern, up to date capitalism.

In the final analysis, Marx was primarily interested in the social production and distribution of surplus value (not profit). His critique of political economy as such was to show their phenomenologically distorted expression under the capitalist mode of production. The “secret gem of causation” to which you allude is probably the fundamentally unequal and contradictory social relation between capital and labor, which Marx shows is the ultimate cause of capitalism’s recurring, and increasingly destructive crises.

Post-industrial capitalism might have left Marx behind. But there is a very big world beyond capitalism.

True. I would say Marx is concerned first and foremost with the full circuit of reproduction of capital–i.e. how capital is able to reproduce itself (or fails to do so). Capital is a chameleon. It takes many forms in the circuit. Some are price in nature when it enters exchange. Price comes in many forms. Profit is both a value form and an exchange-price form. So if this is true, why do some contemporary marxists become primarily preoccupied with profit as the determinant of the circuit of capital in exchange? Profit is dual. It is part value from production and part exchange produced. How does one separate out profit from value production (produced by productive labor only per Marx) from profit produced in exchange relations? When marxists today who adhere to the falling rate of profit thesis, and refer to national income accounts data showing ‘corporate profits’, that latter definition is composed of profits from value production (by productive labor) as well as from exchange relations. How does one separate out the two forms of profit? Marx uses labor time, but that’s not sufficient (for reasons I won’t go into here). Marxists who adhere to the falling rate of profit thesis assume all profit data is productive profit, not exchange profit. But that’s not so. Moreover, by referring to corporate profits they exclude other forms of capitalist profits–like business income. That’s profits by capitalists who just aren’t organized in the corporate form. But marxists leave that data out. That data, however, is subject to the same problem of corporate profits–i.e. it is composed of profits from productive labor and from exchange. In short, ANother problem with corporate profits data is that at least 30% of profits reported by large corporations is really what is called ‘portfolio profits’, that is profits from financial asset investing. That’s profits from exchange, once again. So it has to be taken out of the total profits picture if one is to keep to Marx’s position that only profits from productive labor matter. Then there’s the even further problem of multinational corporations raising or lowering their US profits totals by means of manipulating ‘intra-company’ transfer pricing. That makes the US data even less reliable. And how about China state owned enterprises, which due to transfer and tax adjustments reduce the reported level of their ‘profits’? There are so many problems associated with using profits as the determinant of capital accumulation (aka investment), and thus the reproduction of capital, that the falling rate of profit tendency argument is virtually useless as a means to arguing that profits determine business cycles. One final comment: Marx wrote within the conceptual framework of classical economics (although he extended that framework and made some very useful new concepts (e.g. labor time)). But like the classicalists, he was interested in the long run (business cycles are short run). He was interested in how exploitation of labor would lead eventually to the breakdown of capitalism–not short term business cycles. The falling rate of profit thesis should be understood in relation to that long run (and essentially supply side argument) possibility. As for fictitious capital, yes he discussed that but did not argue that forms of it could so disrupt the full reproduction cycle of capital that it would interefere with the re-formation of fixed and variable capital expanding. The future of Marxist economics, I’m arguing, requires a further conceptual framework advancement. Marxism is about exploitation and its affects on the macroeconomy. Contemporary marxist economists should be understanding the many new ways that capitalists exploit labor. That’s the key; not falling rate of profit or any kind of profit determines capitalist evolution. I’ve always found the most profound part of Marx’s analysis was his empirical and historical exposition of relative and absolute surplus value. Not the effects of that on profit rate determination. Marxist economics must find a way to accomodate financial forms of exploitation into its analysis and understand better what happens in the exchange circuit of capital reproduction that disrupts the whole circuit. The conceptual analysis there is poorly developed. But one can’t blame marx for that. Finance capital was only in its rudimentary development stage when he wrote. Today it is increasingly dominant.

Marx was aware in his vol. III notes (and just notes, not published, not even gathered by him but by Engels, so who knows what has been left out) of the rise of fictitious capital. But as I indicate above, Marx had no analysis of its potential negative impact on the full reproduction circuit of capital. In fact, he kind of dismisses fictitious capital as a kind of aberration, or a factor that at least is not critical to disrupting capital reproduction. What is needed is a kind of new ‘disproportionality crisis’ analysis, where fictitious capital (aka financial asset investment) is understood as disruptive of the full circuit reproduction of capital.

“Marx had no analysis of its potential negative impact on the full reproduction circuit of capital. In fact, he kind of dismisses fictitious capital as a kind of aberration, or a factor that at least is not critical to disrupting capital reproduction.”

Not true.

For example, Marx writes in Capital III, Chapter 33,

“The credit system, which has its focus in the so-called national banks and the big money-lenders and usurers surrounding them, constitutes enormous centralisation, and gives to this class of parasites the fabulous power, not only to periodically despoil industrial capitalists, but also to interfere in actual production in a most dangerous manner — and this gang knows nothing about production and has nothing to do with it. The Acts of 1844 and 1845 are proof of the growing power of these bandits, who are augmented by financiers and stock-jobbers.”

And Marx was well aware of the contradiction that arises with expropriation of the expropriators, as private capital is replaced by socialised capital, in the form of the joint stock company. For example, he writes,

“For the productive capitalist who works on borrowed capital, the gross profit falls into two parts — the interest, which he is to pay the lender, and the surplus over and above the interest, which makes up his own share of the profit. If the general rate of profit is given, this latter portion is determined by the rate of interest; and if the rate of interest is given, then by the general rate of profit. And furthermore: however the gross profit, the actual value of the total profit, may diverge in each individual case from the average profit, the portion belonging to the functioning capitalist is determined by the interest, since this is fixed by the general rate of interest (leaving aside any special legal stipulations) and assumed to be given beforehand, before the process of production begins, hence before its result, the gross profit, is achieved. We have seen that the actual specific product of capital is surplus-value, or, more precisely, profit. But for the capitalist working on borrowed capital it is not profit, but profit minus interest, that portion of profit which remains to him after paying interest. This portion of the profit, therefore, necessarily appears to him to be the product of a capital as long as it is operative; and this it is, as far as he is concerned, because he represents capital only as functioning capital. He is its personification as long as it functions, and it functions as long as it is profitably invested in industry or commerce and such operations are undertaken with it through its employer as are prescribed by the branch of industry concerned. As distinct from interest, which he has to pay to the lender out of the gross profit, the portion of profit which falls to his share necessarily assumes the form of industrial or commercial profit, or, to use a German term embracing both, the form of Unternehmergewinn (profit of enterprise)…

Because, as we have seen, as soon as a portion of profit universally assumes the form of interest, the difference between average profit and interest, or the portion of profit over and above the interest, assumes a form opposite to interest — the form of profit of enterprise. These two forms, interest and profit of enterprise, exist only as opposites. Hence, they are not related to surplus-value, of which they are but parts placed under different categories, heads or names, but rather to one another. It is because one portion of profit turns into interest, that the other appears as profit of enterprise….

But on the other hand, this antithesis to wage-labour is obliterated in the form of interest, because interest-bearing capital as such has not wage-labour, but productive capital for its opposite. The lending capitalist as such faces the capitalist performing his actual function in the process of reproduction, not the wage-worker, who, precisely under capitalist production, is expropriated of the means of production. Interest-bearing capital is capital as property as distinct from capital as a function. But so long as capital does not perform its function, it does not exploit labourers and does not come into opposition to labour.

On the other hand, profit of enterprise is not related as an opposite to wage-labour, but only to interest.”

Its in this sense that the money-lending capitalists/shareholders appear as merely a “sybaritic excrescence” on production in the same way that previously the landlords did.

What Marx perhaps could not have foreseen was the extent to which QE has facilitated those shareholders and other owners of fictitious capital becoming primarily concerned with maintaining their paper wealth via the preservation of asset price bubbles, rather than with a search for revenue via interest/dividends. So, whilst Marx is ultimately correct in what he says above about the requirement for capital to actively engaged in productive activity, that has not prevented the owners of that fictitious capital from attempting to prop up asset prices, by diverting increasing amounts of profit into financial speculation, rather than productive investment.

Ultimately, however, Marx is correct, when he says,

“It would be still more absurd to presume that capital would yield interest on the basis of capitalist production without performing any productive function, i.e., without creating surplus-value, of which interest is just a part; that the capitalist mode of production would run its course without capitalist production. If an untowardly large section of capitalists were to convert their capital into money-capital, the result would be a frightful depreciation of money-capital and a frightful fall in the rate of interest; many would at once face the impossibility of living on their interest, and would hence be compelled to reconvert into industrial capitalists.”

And, is why this previous period of financial speculation has simply sowed the seeds of its own destruction, in the inevitable huge financial collapse that is coming.

But, even here, Marx and Engels were aware of this potential too. As their narrative in relation to the financial speculation that blew up the stock market bubble in 1847, as part of the Railwaymania demonstrated. Engels, there shows the extent to which the private productive capitalists were prepared to drain money-capital from investment in their own business, solely in order to speculate in Railway shares.

Sorry Boffy, but interest is not fictitious capital, and while Marx identifies the latter there is no real analysis except in general historical terms how fictitious capital (or money created from money forms, not f rom labor) affects the creation of value from productive labor or the subsequent circuit of capital back to fixed and variable capital. He sees the potential problem but doesn’t explain its dimensions. Again, this can’t be resolved by quoting from texts including Marx. It can only be solved by quantitative analysis.

I didn’t say that interest was fictitious capital. Interest is the price of loanable money-capital. But, loanable money-capital is fictitious capital, for the reasons Marx and Engels describe. That is it is simply the same capital that appears twice within the circuit of capital M – M – C…P…C` – M` – M+i. It is fictitious, because it has no independent power of self-expansion. It only self-expands to the extent that it is used by productive-capital, in the actual process of capitalist production, and the generation of surplus value, thereby.

I agree with some of your comments about the realisation of profit in the process of exchange, but this is basically only the same point, in a different context, that Marx makes in relation to commercial capital, i.e. commercial capital creates no new surplus value, but that does not mean that it does not result in the realisation of greater masses of profit, because surplus value only becomes profit via circulation, and circulation involves costs, which diminish the produced surplus value. By reducing the costs of circulation, commercial capital does not create additional surplus value, but does raise the mass of profit, and so also the rate of profit.

The same thing can be said about money-dealing capital, which Marx identifies as just a form of commercial capital, but could also be said about money-lending capital, to the extent that it facilitates the reduction of the amount of money-capital lying fallow for any given period of time.

The question here, however, is to what extent a) the owners of fictitious-capital, particularly shareholders, have been fulfilling that function, by speeding up the process by which this loanable money-capital is made available for productive investment, as opposed to using their power to simply draw larger dividends, and thereby actually deprive productive-capital of potential accumulation, to use profits to buy back shares so as to boost share prices, and eps figures, to take capital transfers, and to pay out hugely inflated stipends to the executives that protect their interests as opposed to the interests of the company; b) the banks and other owners of loanable money-capital have used it not to invest in additional productive capacity, but merely to engage in financial and property speculation, blowing up or attempting to keep inflated huge asset price bubbles.

Obtaining capital gains on such exchanges creates no new value, no new profit or surplus value, and the delusion that it does led to the crash of 2008, and is leading to a much bigger financial crash in the not too distant future, whilst is acting to drain potential money-capital from productive investment, which thereby reduces economic growth, and reduces the production of real surplus value and profits, upon which those fictitious profits/capital gains and the underlying interest and rents depend.

You say fictitious capital “has no independent power of self-expansion. It only self-expands to the extent that it is used by productive-capital, in the actual process of capitalist production, and the generation of surplus value, thereby.” Do you really belief that trillions of dollars of money capital created by hedge funds, private equity firms, and other ‘shadow banks’ constitutes self expansion used by productive capital”? That statement is just not empirically correct. The global shadow banking system now holds more investible assets than the commercial banks. This is the kind of contradiction statements pulled from texts lead to when not checked against the actual world.

No, I don’t because I don’t believe those trillions of dollars of financial assets constitute money-capital, they only constitute hyper-inflated paper assets, whose paper price has been blown up by that speculation promoted by the money-printing of the central banks.

Its why, the yield on those financial assets has continually been forced down to, and in some cases, as with shorter dated EU sovereign bonds, even below zero! Its precisely because as Marx sets out in Capital III, not all accumulation of money-capital, in the form of such financial assets, is the same as the accumulation of real-capital that interest rates fall, and asset price bubbles are inflated.

Its precisely because those asset price bubbles in shares, bonds and property have been blown up to such ridiculous levels completely separated from the underlying investment in productive-capital required to produce the surplus value that creates the rent and interest upon which those asset prices are ultimately based, that these financial bubbles are bound to burst in the near future in spectacular fashion. Then we will see just how real those trillions of dollars of money-capital created by those hedge funds actually are, and how much of that value was in fact just hot air.

The epitome of it is Bitcoin. On your basis we could say that hundreds of billions of money-capital has been created in Bitcoin. But, in fact, Bitcoin is literally worthless, i.e. it has no value. Unlike gold, or silver it has no use value other than purely as an object of speculation. It is the classic example of a pyramid scheme. And, because it literally has no value, it can just as easily go to zero tomorrow, as it has gone from nothing to $20,000 in the last year. Unlike even money tokens such as the Dollar, backed by a state and central bank, whose value is ultimately a fiat backed entitlement to a quantum of social labour-time, Bitcoin provides no basis of any such claim to value, which is why even despite the QE undertaken by the Federal Reserve, the Dollar itself has proved a much more stable unit of account, and store of value than either Bitcoin or gold, whose prices have fluctuated wildly over the last few years, and in the case of Bitcoin by as much as 50% in a single day.

This response to jackrasmus may also help clarify the question I am asking about item 6 in discussion between me and sartesian.

There is a long quote from C.J. Bliss describing what he believed (and I believe) was generally agreed among “marxians”, “Sraffians” and left-Keynesians on the one hand and neo-classicals on the other as defining a basic disagreement between those two camps along the lines of what I understand jackrasmus to be pointing out.

According to Bliss the neo-classicals accept that there are mutually determining forces involving not only investment and profits but also demand, supply, prices, choice of technique etc that are prior to the “emergence” of distribution between wages and surplus value, whereas what Bliss (and jackrasmus) calls Marxists insist that there is a prior distribution (and choice of technology) from which one can calculate “values” and a rate of profit and then “transform” them into “production prices” based on an average rate of profit.

The “literary analysis” you describe ( exemplified by Boffy in this thread) should not be blamed on Marx, but only on “marxians”.

However badly he may have occasionally expressed himself Marx was not economically illiterate and it would not even have occurred to him that an entire academic industry could become devoted to alleging secret gems of causation in a system of mutual determinations that he consistently analysed dialectically rather than metaphysically.

Apologies for the incoherence of that post which is currently for my own benefit. But the quote itself should be of interest to others. The blog isn’t open and has no navigation structure. It does have links on main page for free download as well as purchase of Maksakovsky’s “The Capitalist Cycle”, which explains Marx’s dynamics of mutual determination.

Jack – good to hear from you. And let me say that you are doing great work with your blog and broadcasts on analysing the American capitalist system and its rotten ruling elite. I recommend that all should follow jack at https://jackrasmus.com/

Your points would take too long to answer in full here. So let me just make the following points in response.

1. Yes, profits determine investment and investment affects profits. In that sense, there is feedback. Indeed, there is plenty of empirical work to show that. But also to show, in the first and last analysis, that ‘profits call the tune’, not vice versa. I refer you to J Tapia’s paper (https://thenextrecession.files.wordpress.com/2015/06/does-investment-call-the-tune-rpe.pdf) and my paper jointly with G Carchedi (http://gesd.free.fr/robcarch13.pdf), and more recently G Carchedi’s paper (https://thenextrecession.files.wordpress.com/2017/09/carchedi-the-old-and-the-new.pdf).
2. I think it is right and proper for any scientist to apply empirical statistical techniques to verify/falsify theories and we Marxists are ‘scientific socialists’. Sure, correlation does not mean causation. But as you hint, we can use statistical techniques to improve the probability of causation. ‘Granger causation’ is one technique. It been applied by J Tapia in this paper here (https://mpra.ub.uni-muenchen.de/64698/1/MPRA_paper_64698.pdf)and by me here (https://thenextrecession.files.wordpress.com/2017/04/the-profit-investment-nexus-michael-roberts-hmny-april-2017.pdf).
3. And then there are levels of causation (or abstraction if you like). Marx’s law of profitability reveals the underlying cause of crises that are regular and recurring at one level of causation, but the role of fictitious capital and financial markets provides the triggers (stock market crash, housing bust, corporate credit crunch, bank runs etc) at another level (see here: https://thenextrecession.files.wordpress.com/2014/02/presentation-to-the-third-seminar-of-the-fi-on-the-economic-crisis.pdf). And that financial aspect has undoubtedly increased in the last 50 years.
4. In my view, Marx’s law of profitability is both cyclical and secular. It explains the underlying cause of regular and recurring crises that cannot be avoided AND also that capitalism is a transient mode of production that will (has?) exhausted its ability to increase the productive forces (productivity of labour) and must be replaced in the interests of the many. That is what my book, The Long Depression, argues.
5. Crises have happened on a regular and recurring cycle ever since capitalism became the dominant mode of production, well before modern 21st century speculative capital became so large – so there must be some underlying cause(s) of crises outside of the finance sector. And that has not really been altered by modern ‘financialisation’, in my view.
6. This debate is important politically. If capitalist crises are not recurring and can be avoided, then reforms could be devised to keep the capitalist mode of production going harmoniously (Keynes). And if crises are caused (in the 21st century at least) by ‘financial speculation’ and not by the inability of capitalism to maintain profitability through exploitation, then taking over the finance sector could do the trick. Are we ‘Marxist economists’ really saying that the productive non-financial sector of the capitalist economy would work fine if it were not for interference or ‘feedback’ from finance?

Thanks for the blog plus. And I’ll check out the Tapia piece. Just let me add re. ‘causation’ that we tend to think of it as a singular force. But as I began to explain in my 2010 ‘Epic Recession: Prelude to Global Depression’ book, causation has qualitative levels. There are precipitating causes (let’s say of the 2008-09 crash), enabling causes, and fundamental causes. Each have a different (tho similar) dynamic and also interact with each other.

As for your phrase, ‘profits call the tune’, I’m not sure how to interpret a musical metaphor, ‘call the tune’. Does that mean profits are singularly responsible for business cycle dynamics? That they are primarily (but not totally) responsible? (If primarily too what quantitative extent?). Profits are responsible ‘in the last analysis’? Or something else. Metaphors are great for poetry (as Aristotle correctly said). But my antennae go up whenever I read or hear an economist make an argument employing metaphors.

As to your point 6 above in your comment, I do not argue that ‘financial speculation’ is solely responsible for the 2008-09 crash, or any other. What I argue is that it is the interaction of real investment and financial asset investment that is the key to understanding the crisis–along with rising total debt (household-business-government), contracting real incomes, and government fiscal-monetary policies. What’s new and important in 21st century capitalism is the relative shift to financial asset investing (financial speculation is just a subset) at the expense of real asset investing (net private capital formation?). Or another way to say it, the shift from profits from production to profits from finance–from money from exploitation of productive labor to money from money. This does not mean the processes Marx described, of exploitation of labor in production, no longer apply. They do. In fact they are intensifying. But alongside this is the intensification as well of creating profits from exchange value by capitalists. What’s the relation between the two processes today, how they interact, and mutually determine each other and in the process create crises like 2008-09 (another of which will occur in 2-4 years I’m convinced). That’s the key to analysis of the next crisis, not just the falling rate of profit from production by productive labor.

3. I agree that a feature of the last 40 years has been a switch from investment in productive capital to financial assets – because profitability in productive capital has fallen and recovered only minimally since the 1980s. But the shift from profits in productive capital to financial capital is a zero sum game (in the end) because profits from the latter are either fictitious or a reduction from surplus value created in the productive sector. see Carchedi https://thenextrecession.files.wordpress.com/2017/09/carchedi-the-old-and-the-new.pdf

4. Profits cannot be ‘created’ from exchange. Marx’s value theory is clear on this. They can only be transferred from productive sectors. Value only comes from the exploitation of labour, the rest is a question of distribution through exchange.

5. I agree. Another crisis is coming and is now overdue. It will be financial in ‘precipitation’ and ‘enabled’ probably by a corporate credit crunch this time. But the ‘fundamental’ cause will be a new insufficiency of surplus value creation. So we agree on the result if not on the causes.

I disagree with your logic in part 3 of your rejoinder. You may claim that profits from finance capital investment is a shift of profits from productive capital. But you don’t show the actual transmission mechanism how this occurs. You just identify the decline in the former and rise in the latter. Again, this is correlation and causation analysis. Profits from finance, or exchange circuit processes, are not a zero sum ‘reduction from surplus value created in the productive sector’. First of all the volumes are not equivalent. Second, if not equivalent, how do you estimate the amount of profits reduction from productive labor being shifted to financial? Are all profits from financial investment (where productive labor is not involved, and therefore money is being used to create money, n ot goods produced and transformed into the money form) equivalent to fictitious capital? The concept of fictitious capital needs to be understood more. The forms of it in Marx’s day are different today. Do all forms of it have the same effect, passive or disruptive, on the production of real value and its circuit in reproduction? Let’s stop just quoting Marx and analyze the changes further. And not assume all forms of fictitious capital are the same or have the same effects. And, once again, it can’t be simply assumed that production of value with productive labor, and the profits that are produced thereby, is a zero sum equivalent to the expansion of profits from exchange values. (Profits itself is a concept that is both determined from productive labor and from exchange-price relationships–at least in the capitalist government data that is often used to estimate rates of profit–i.e. corporate profits from the national income accounts.

In other words, contrary to your definition, profits can and are created from exchange. At least in the data you often refer to as evidence of the falling rate of profit. To define profits only as from productive labor is to use a definition you cannot quantify. Capitalist accounts to not indicate profits only from productive labor. And you can’t estimate it accurately due to issues I raised previously–i.e. portfolio investment, intra company transfer pricing, state owned enterprises, and numerous other problems of estimation.

Re. your last point, Yes the financial cycle contributes to the crisis as a precipitating cause. And a general credit crash that follows functions as an enabling cause. But there are more ‘fundamental’ causes than profit rates from productive labor. I am suspicious of any ‘single cause’ explanation of crises. (By the way, normal (short) recessions are generally not associated with financial forces. Depressions always are. And then there’s the ‘hybrid’ business cycle contractions that share characteristics of both ‘normal’ recessions and depressions and can transform into bona fide depressions. For example, 1929-30 was an ‘epic’ recession (my term for ‘great’ recession), that subsequently fell into a true depression. The ‘great’ (epic) recession that began in 2007-09 was pulled from the brink of depression by massive ($25 trillion) central bank liquidity injections worldwide. But that did not solve the crisis. It only bought time for the capitalists. And the $25 trillion will exacerbate the next crisis that is coming. Monetary policy cannot solve crises in the long run. The injections will make the next crisis even worse than 2007-09. This mass of money capital form plays a central role in the coming crisis, Its symptoms are the exploding forms of debt worldwide since 2009–corporate, household, and government. This debt will play a central role, not just productive labor profits decline, as you argue. It’s not one or the other. It’s both. In my 2016 book, ‘Systemic Fragility in the Global Economy’, I have chapters on both financial system restructuring globally and on labor market restructuring. The latter addresses your focus on labor exploitation and its contribution to crises; the former addresses the additional forces from financial asset investment and how it contributes to the crisis. I submit that you need not abandon your analyses of the fundamental role of productive labor derived profits (surplus value) in order to recognize that other fundamental forces of a financial character are also at work in the 21st century capitalist economy contributing significantly to crises (i.e. severe short term capitalist business cycle contractions). You don’t need to drop the falling rate of profit thesis. You do need to recognize it’s not the whole story and needs to be integrated into a more complex analysis of contemporary capitalism that includes financial (aka some of which is fictitious) capital.

Michael, just taking up sartesian’s suggestion that you might be able to answer my question re point 6 of our discussion that sartesian and I broadly agree on.

a) Is it clear enough what I am asking about? If not, are you interested in clarification?

b) If clear enough do you broadly agree with what sartesian and I agree on re point 6?

c) Either way, can you shed any light on what neither sartesian nor I know due to not following much related discussions outside this blog? Do you think there would be widespread or negligible broad agreement among people interested in such things (tendency for organic composition to rise and rate of profit to fall) with the view both sartesian and I take in point 6?

Sartesian, thanks for the detailed response. Delighted you are reading Maksakovsky again. I recommend postponing the translator’s introduction and focus on intro and chapters 1 and 2 which are quite short. Lots of work will be required further developing from chapter 3 in view of changes since Great Depression. Will get back to you on other points in this thread, hopefully tomorrow. Am too tired tonite. (Ditto for others in this thread).

I agree that accumulation and competition are the drivers of technology and profitability – if I understand your point correctly. I too am reading Maksakovsky more closely to take a view on his approach. Watch this space.

Except that competition and accumulation are constants, whereas the introduction of new technologies is not, but proceeds in cycles. Consequently, competition and accumulation cannot be the explanation for why capital has periods where it innovates more actively than others. The explanation is not competition, nor accumulation, other than extensive accumulation on the basis of the existing technologies leads to a slowdown in the growth of productivity, the using up of existing labour supplies, and so rising costs, and a reduction of the rate of surplus value, which acts to squeeze profits.

Extensive accumulation on the basis of the existing technology cannot lead to the operation of the law of the tendency for the rate of profit to fall, because as Marx sets out, it does not lead to any change in the organic composition of capital, which is the basis of that Law, other than relatively marginally as a result of economies of scale. As Marx says,

“Growth of capital, hence accumulation of capital, does not imply a fall in the rate of profit, unless it is accompanied by the aforementioned changes in the proportion of the organic constituents of capital. Now it so happens that in spite of the constant daily revolutions in the mode of production, now this and now that larger or smaller portion of the total capital continues to accumulate for certain periods on the basis of a given average proportion of those constituents, so that there is no organic change with its growth, and consequently no cause for a fall in the rate of profit. This constant expansion of capital, hence also an expansion of production, on the basis of the old method of production which goes quietly on while new methods are already being introduced at its side, is another reason, why the rate of profit does not decline as much as the total capital of society grows.”

(Capital III, Chapter 15)

Its true that often new technological solutions are applications of existing technologies in new ways. For example, the technology behind the steam engine goes back to Roman times. The point is that rising costs lead capital to seek out these new applications of existing technology, but it also drives the development of new technologies themselves. For example, as marx says about the drive to introduce these new technologies, in agriculture as a result of rising agricultural wages.

“Take, for example, the rise in England of agricultural wages from 1849 to 1859. What was its consequence? The farmers could not, as our friend Weston would have advised them, raise the value of wheat, nor even its market prices. They had, on the contrary, to submit to their fall. But during these eleven years they introduced machinery of all sorts, adopted more scientific methods, converted part of arable land into pasture, increased the size of farms, and with this the scale of production, and by these and other processes diminishing the demand for labour by increasing its productive power, made the agricultural population again relatively redundant. This is the general method in which a reaction, quicker or slower, of capital against a rise of wages takes place in old, settled countries. Ricardo has justly remarked that machinery is in constant competition with labour, and can often be only introduced when the price of labour has reached a certain height, but the appliance of machinery is but one of the many methods for increasing the productive powers of labour. The very same development which makes common labour relatively redundant simplifies, on the other hand, skilled labour, and thus depreciates it.”

(Value, Price and profit)

And in Capital I, Marx describes the effect of the Factory Acts in causing costs to rise, which led capital to seek out new technological solutions. As he sets out, the earthenware producers argued that if they were made liable to the Factory Acts and ten Hours Act, they would not be able to produce a profit because of the increased cost. But, they were brought under the Act, which led them to innovate, and thereby not only survived, but became more profitable.

“In 1864, however, they were brought under the Act, and within sixteen months every “impossibility” had vanished.

‘The improved method,” called forth by the Act, “of making slip by pressure instead of by evaporation, the newly-constructed stoves for drying the ware in its green state, &c., are each events of great importance in the pottery art, and mark an advance which the preceding century could not rival…. It has even considerably reduced the temperature of the stoves themselves with a considerable saving of fuel, and with a readier effect on the ware.’

In spite of every prophecy, the cost-price of earthenware did not rise, but the quantity produced did, and to such an extent that the export for the twelve months, ending December, 1865, exceeded in value by £138,628 the average of the preceding three years.” (Capital I, Chapter 15 p 447)

The other side of Marx’s description here, is that, in fact, competition during normal times leads capital NOT to innovate, because to do so involves additional costs, and risks. In Capital I, Marx describes the way larger companies often wait for smaller, newer companies to implement innovations to see how they pan out, and then when any problems have been ironed out, the larger company will often introduce the new technologies and techniques wholesale.

As Marx describes in Capital III, Ch 15, for long periods during capital simply rolls out more of the existing technology – extensive accumulation, which only marginally affects the organic composition of capital, and has little effect on the rate of profit. Only when that process runs up against its limits so that input costs rise, as a result of labour shortages, rising costs of raw materials from existing mines etc. is it incentivised to look for new technological solutions, as he described in relation to the rising agricultural wages between 1849-59.

Marx also describes that process in relation to the long wave cycle in relation to the long-term movement of agricultural prices during the 18th and 19th centuries, as he set out in TOSV Chapter 9. There he describes the way that when capital runs up against these limits in relation to raw materials/food, it is led to have to develop new areas of land as farms, mines etc., and this involves large-scale, long-term investment of fixed capital not just in the clearing, drainage etc. of the land, and the investment of capital in the new farms and mines, but also in all of the necessary infrastructure in roads, rail, warehousing and storage, depots ports, and so on, and this then takes at least a decade before this investment is able to raise this new production up to the level of fertility/productivity of the old production, before it begins to impact the market value of these commodities. That is, one of the driving forces behind the periodicity of the long wave cycle, which in turn is the driver of periods of prosperity and boom and crisis, and the following period of stagnation.

The water mill was known in the Roman World and Marx himself quotes (CapitalVol.I. p532) the poem of the Greek Antipater ”Spare the hand that grinds the corn, oh miller girls,… the work of girls to be done by nymphs, and now they skip lightly over the wheels…and pull round the load of revolving stones…and let us rest from work.” I suspect this is a decidedly utopian vision, but it is indicative that the mill is seen as liberating the slave girls from hard labour so as to rest more, and not for the purpose of increased production.

Further, the principle of steam propulsion was known to the ancient Greeks (”The Pneumatics of Hero of Alexandria” London 1971). Steam power was used for toys and gimmicks like opening temple doors (P57).

The distinguished ancient historian, Moses Finley, author of ‘The Ancient Economy” etc. observes that in his reading of the primary sources he has never found any passage suggesting the substitution of machinery for labour. In Vitruvius’ ”De Architectura” for example he says that machines are seen as aids to the performance of complex tasks and never as a means to make labourers redundant.

Marx quotes Sismondi to the effect that modern society lives on the proletariat, while in Ancient Rome the proletariat lived on society. I have to remark that these two distinguished thinkers are here talking nonsense. Wage labour in fact was much more prevalent than Marx envisaged : just think of the number of dock workers required during the sailing season from April to September to unload the grain ships on to barges for transport up river to Rome itself. Given the population of Rome, some scholars have suggested a number between 9 and 12 thousand. These I would argue must have been day labourers. However that may be, despite the fact that there were large numbers of free labourers, considerable merchant capital and no little technical expertise in Ancient Rome I see no evidence of a drive towards a rising organic composition of capital. I think then that Arthur’s point

6.” It isn’t new inventions that drives the rising organic composition of capital but the existing range of available technologies responding to higher wages – making Okishio’s “basket” theorem nonsensical.”

In view of the above we should of course bear in mind that ”Technologies have an order of dependence to them that can not be arbitrarily skipped over. Without the knowledge and skills associated with a particular stage of technology, you can not simply go on to develop the next.” ( I owe this observation to Paul Cockshott).

“Without the knowledge and skills associated with a particular stage of technology, you can not simply go on to develop the next.” ( I owe this observation to Paul Cockshott).”

My pet Gerbil can work that out!

Now the power of water may have been known to the neanderthals or the Romans, but they didn’t have a clue about the Power Loom, which as Marx observed “reduced by one-half the labor required to weave a given quantity of yarn into cloth”

Marx and other economists of that time put 2 and 2 together and came up with 4.01. The falling rate of profit theory, while still just about worth hanging onto, is a theory full of holes I am afraid, holes that need filling.

The scientific basis of revolution is not to be found in crises but in class struggle. Marx claimed that capitalism was becoming increasingly a battle between Bourgeois and Proletariat and that these 2 classes would be compelled to battle with each other, with the Proletariat being triumphant. That narrative is yet to happen.

Capitalism will stagger on however ineffectually for as long as that remains the case no matter how many crises, unless the oil runs out or a global war erupts or whatever.

Boffy: “Except that competition and accumulation are constants, whereas the introduction of new technologies is not, but proceeds in cycles”

1st comment: Hence the LONG TERM TENDENCY for the rate of profit to decline. Hence Marx’s distinction, and distinguishing of the TROPTF as the most important law of capitalist accumulation, rather than the explanation for every short-term eruption of a crisis.

2nd comment: This is wrong on so many counts, not the least of which is that accumulation itself proceeds in cycles, evident from the cycling from expansion to contraction as manifest in the long deflation 1873-1898; the post War 1945-1970 period followed by the increasing severity of recession/ increasing “lassitude” of the recoveries post 1970.

“Consequently, competition and accumulation cannot be the explanation for why capital has periods where it innovates more actively than others. The explanation is not competition, nor accumulation”

Except of course no one has argued that competition and accumulation explains INNOVATION, only that accumulation and competition explain a) the tendency of the ROP to fall b) the APPLICATION of technology(ies) to the production process, which application has one impact on the valorization process which, as the application spreads, flips into the opposite impact.

This quote of Marx ““Growth of capital, hence accumulation of capital, does not imply a fall in the rate of profit, unless it is accompanied by the aforementioned changes in the proportion of the organic constituents of capital.” does NOT support, and doesn’t even refer to the same process, that others (Arthur and myself to name two) are describing when we state that the TROPTF is driven by accumulation itself as expressed through competition. Marx is not referring to the degree or quality of innovation, but to the value proportions of the constituents of capital. Let’s recall that Marx says that there is a technical relation between the constant and variable components of the capitalist production process, and there is at the same time a value relation between these components. The ORGANIC composition of capital is the synthesis of these two features and specifically correlates the breadth, depth, and mass of accumulation with value relations.

The reason for the tendency for the rate of profit to fall is not due to the “innovative” nature of technology, whatever that is, but rather by the need to augment, amplify the productivity of labor. The GENERAL LAW of CAPITALIST ACCUMULATION is that objectified labor, labor embodied in the means of production as capital value replaces living labor. This changes the value relations between the components leading to the famous TENDENCY.

“The other side of Marx’s description here, is that, in fact, competition during normal times leads capital NOT to innovate, because to do so involves additional costs, and risks.”

“As Marx describes in Capital III, Ch 15, for long periods during capital simply rolls out more of the existing technology – extensive accumulation, which only marginally affects the organic composition of capital, and has little effect on the rate of profit. Only when that process runs up against its limits so that input costs rise, as a result of labour shortages, rising costs of raw materials from existing mines etc. is it incentivised to look for new technological solutions, as he described in relation to the rising agricultural wages between 1849-59.”

This is just not an accurate account. I suggest everyone look at actual expansions of industries using the same technology– let’s say the continued introduction of electric-diesel locomotives on railroads in the US post WW2 and see what the result was on the rate of profit. Hell’s bells, look at US railroad expansion in the long deflation 1873-1898 and tell us a) if you find a period where the extensive accumulation did NOT include technical innovations (standard gage, closed track circuit, interlockings, improvement in the quality of rails at the same time as b)if the “basic” technology– reduced contact between wheeled vehicle and fixed guideway did not continue to dominate the enterprises and drive the overall expansion c) if that basic expansion did not drive the long-term rate of profit down d) jump ahead to the post WW2 period and tell us what labor shortages drove railroads to go to diesel electric locomotives when the transition involved the radical reduction in labor force.

I am indeed watching this space looking forward to your comments after reading Maksakovsky. (Not complaining at delay – I haven’t even done a plan for my blog promoting Maksakovsky yet and won’t be able to get started on it till at least next month despite you having put Pete Green in touch).

But also hoping for an answer now on my question c)

“c) Either way, can you shed any light on what neither sartesian nor I know due to not following much related discussions outside this blog? Do you think there would be widespread or negligible broad agreement among people interested in such things (tendency for organic composition to rise and rate of profit to fall) with the view both sartesian and I take in point 6?”

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jlowrie, your “spot on” to the item 6 sartesian and I broadly agrees on makes 4 in this thread, including Michael. Welcome to a growing trend for recovery from what I still think was the dominant opposite view earlier!

I get your point about ancient Rome, but that lack of interest in labor costs was because the working class were mainly slaves, not proletarians. Better to concentrate on dynamics of modern capitalist accumulation.

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Boffy,

At least your last long bout of quotation mongering from Marx was relevant, and not selected from passages that people get confused rather than helped by. But it would be at lot easier to engage if you quoted less and responded more.

” Except that competition and accumulation are constants, whereas the introduction of new technologies is not, but proceeds in cycles. Consequently, competition and accumulation cannot be the explanation for why capital has periods where it innovates more actively than others. ”

That is indeed a response, worth replying to. The issue is whether cycles are a response to periods in which capital innovates more actively than others through new inventions or whether new inventions are also ongoing (whether or not strictly “constant”) but actual implementation as “innovations” in usage rather than “discovery” results from changes in relative prices arising from the cycle.

As Marx explained, buried in your long quotes, Capital shifts to more capital intensive techniques when merely extensive accumulation with the existing technology would dry up the pool of unemployment and force wages up.

Specifically this is in your paragraph about quotes from Volume 3, Chapter 15:

“…Only when that process runs up against its limits so that input costs rise, as a result of labour shortages, rising costs of raw materials from existing mines etc. is it incentivised to look for new technological solutions, as he described in relation to the rising agricultural wages between 1849-59.”

I don’t know why sartesian focuses on the first part of that, which I have omitted. The key point is that [Necessarily], “when that process runs up against its limts…”. I would stress that Capital is not “Only” incentivised but has a “necessity” to adopt new solutions when it runs up against those limits. There is simply no alternative when you are up against those limits. This necessity arising from accumulation is enforced by competition in capitalists having to replace technologically obsolete plant with plant that can compete at the prevailing low prices of the depression.

That “incentive” is not primarily to increase R&D for new technologies (which has to be more continuous due to very long lags). It has an immediate effect of a price incentive and therefore a competitive necessity, to actually adopt as “new”, existing more capital intensive solutions that were previously uneconomical when profit rates were higher and wages lower.

These days capitalism is pretty continuously up against those limits. Capital accumulation is overwhelmingly intensive (still shifting subsistence peasantry to wage labor but half the global population is already urban).

As Maksakovsky explains, the wave of technological obsolescence of older labor intensive plant and replacement by more profitable capital intensive plant in the depression following a crash starts off a new cycle of accumulation which as further explained leads to another boom and another crash.

BTW your final Marx quote does not discuss any “long wave cycle”. The lag he mentions between investment in fixed capital and the supply of output years later after construction is completed has nothing to do with half century “long waves” but a lot to do with the regular capitalist cycle that Marx was analysing (and has been named the “Juglar” cycle to avoid acknowledging him). Maksakovsky explains more precisely how that lag results in a cycle (not by the actual physical depreciation of capital after a long lag but by the sudden technological obsolescence or “moral depreciation” as they called it, following a boom and crash).

“Long waves” have become popular because we have had more than half a century of regular capitalist business cycles WITHOUT the crashes that used to mark the start of each new cycle and with relatively mild recessions instead.

Understanding that new dynamic (and its likely end in a bigger than ever crash) will not come from quoting Marx (or Maksakovsky) but from developing them.

What cannot be seen is omitted from consciousness and what cannot be measured is omitted from analysis. Investment is determined by the rate of profit and not the other way round or by any feed back loop. Investment takes two forms. The seen, investment in fixed capital, and the unseen (up to now), investment in circulating capital. Because the changes in the velocity of turnover of circulating capital (about one third of total capital) has not been seen it has been omitted from analysis and estimation despite Marx’s pre-occupation with turnover times. Now that turnover can be measured by the formula GO/GV+(GO-GV)/GV [where GO stands for gross output and GV for gross value added] the effect of profitability on the turnover of circulating capital can be estimated. Circulating capital as Marx described it, is fluid, more easily influenced by the profit environment than is fixed capital.

Generally speaking, circulating capital is influenced by changes in the relative fall in the rate of profit, and fixed investment, by the absolute fall. But here is the rub, absolute falls in the rate of profit are themselves a product in the prior deceleration in the turnover of capital. Any fall in the relative rate of profit which tends to reduce the relative rate of investment, causes turnover times to elongate (to become less fluid). What took 80 days to produce and sell now takes 100 days, resulting in a dimunition in the annual cycles during which profits are produced (and here the question of realisation looms as prices are reduced to clear excess stocks.) That is why the more erudite capitalists, especially FED governors, describe the recession in terms of the inventory cycle (part of fluid capital) and not fixed capital.

Hence the behaviour of fluid capital has been missing. The link between profit and investment has skirted it so that the investigation has concentrated on the link between profits and fixed investment. As I never tire saying, there is no longer a missing link, because what was not obvious is now obvious. If we are to talk to more than a handful of academic Marxists we must make our analysis real and relevant.

In 2008 the financial crisis spread by contagion from the USA focused on the highly leveraged sub-prime mortgages. Today every market internationally is overinflated. Global share values stand at 120% of global GDP. This is unprecedented. It did not happen in 1929, 1973, 2000, or 2008. This time round the conditions for a synchronised global implosion is more developed. It was always a ticking time-bomb, and with interest rates popping up in the USA, that ticking has just got louder.

Marx’s representation of the transformation problem in Capital III assumes that

‘commodities are first sold in some capitalist nether-world in which sectoral rates of profit are not equalized, and then somehow resold in an “actual” capitalist economy subject to the “equilibrium” condition of a single economy-wide rate of profit.
The essential inconsistency of this representation can be seen in the fact that there is necessarily some distribution of embodied labor times corresponding to the regime in which profit rates are equalized across sectors, although neither Marx nor Fred Moseley has any way of calculating these magnitudes.’ Thus the critique of Laibman and Skillman

I have to say I thought the above posts all gave a great deal of food for thought. I was particularly impressed by ucanpolitical’s ”Transforming Values into Prices of Production etc,” which I have printed off to study in more detail, but I wonder how he would respond to Laibman and Skillman?

I should rename my posts “presumptuous layman” …but didn’t Marx assume (as an historical given) that the production process under capitalism (M-P-M’) must begin with the investment of money capital, so that, to begin with, his reproduction schemes reflect prices of production rather than values?

Inasmuch as markets, prices, and profits are phenomenological representations of an underlying physical/historical reality–that is of the necessary reproduction of not only the human beings involved in the production process, but also those in the reserve army, children, the disabled, the elderly, etc. etc—the phenomenological prices of production must hover about the value of alienated labor involved in the production of necessary( but not necessarily realized/ valorized) use values…until the inevitable crisis of overproduction/under production/financial collapse, wars, etc

Sometimes marxists seem to forget the historical materialism of Marx’s dialectical critique of political economy and, with the best intentions, fall into the rabbit hole of … political economy.

Marx assumes total prices equals total values only over the course of the entire industrial (business) cycle because prices are understated in the dormant phase and overstated in the terminal up-phase. Hope that helps.

“but didn’t Marx assume (as an historical given) that the production process under capitalism (M-P-M’) must begin with the investment of money capital, so that, to begin with, his reproduction schemes reflect prices of production rather than values?”

No he doesn’t. In Capital II, Marx makes clear that the circuit M – C…P…C` – M` only applies to the investment of new money-capital, and for example to the accumulation of surplus value, i.e. to m, as opposed to M (as M` divides into M +m). It would only also apply, he says, where a capital is winding up, i.e. the value of the productive-capital, and commodity-capital is being converted into money-capital, never to be metamorphosed into productive-capital again.

Other than in those cases, Marx makes clear M is merely a moment within the circuit of the productive-capital, and the same applies to commercial capital. For existing productive-capital the circuit does not begin with M, but with P. It is, as Marx sets out in Volume II P…C`M`. M – C…P. Here M` divides into M+m. M is the money equivalent of the value of C, the current reproduction cost of the means of production and labour-power, consumed in production, whilst m is the profit. In turn, a portion of m is required to finance the unproductive consumption of the capitalist, as well as also a part going as rent, interest and taxes, with the remainder being available for capital accumulation. M is the money equivalent of the C consumed in production, i.e. it is equal to the current reproduction cost of those consumed use values, irrespective of their historic prices.

But m is an amount of money-capital, or potential money-capital (dependent upon whether it is used for accumulation of productive-capital or not) and unlike M, its ability to accumulate additional capital depends upon what has happened to the value of the commodities that comprise C, i.e. the constant capital, and variable capital. If the value of materials has risen, this value is transferred to the value of final production, and is reflected in M, and so available to reproduce on a like for like basis the consumed materials, as required by social reproduction, as Marx sets out in Capital III, Chapter 49. If the value of labour-power rises, this has no effect on the value of final output, but it does result in a fall in s, so that, the value of c in C` (C + c) falls, and so m, thereby falls.

But, if the value of materials rises, whilst the value of labour-power, and consequently of m, remains constant, this constant level of m, will buy fewer materials in the next reproduction cycle, so the rate of accumulation will be reduced. This is precisely why Marx says that the rate of profit must be calculated on the actual value, i.e. current reproduction cost of the productive-capital, and not on the historic prices paid for it, because it is only by calculating the rate of profit on the basis of the current reproduction cost, i.e. value that an accurate picture of the potential for capital accumulation can be derived.

Its true that when actual firms buy materials and labour-power, they pay for them at their current market price, which we can assume to be their price of production, but its precisely for this reason that in examining Marx’s transformation models, the value of inputs as well as outputs have to be transformed, because those models begin with different spheres where the values for c + v are given in exchange values, and not in prices of production.

If for example, we consider a two sector model rather like Marx’s use of the Tableau Economique, where there are agricultural producers and industrial producers (we can leave out landlords) then if we assume that the rate of profit is higher in agriculture, so that capital first begins to accumulate in that sphere, then the consequence is, as Marx describes, that as this capital accumulates, the supply of agricultural products rises relative to the demand, so that the market prices of those commodities falls. Agricultural commodity prices thereby fall below their exchange-value. They will fall until such time as agricultural profits are reduced to the average, i.e. to where agricultural prices are equal to the price of production.

So, if we had

A

c 1000 + v 2000 + s 2000

I

c 1000 + v 1500 + s 1500

These are given in exchange values. But, if the price of agricultural commodities falls, as capital enters this sphere, and supply rises, then a number of things are obvious. As the agricultural prices fall, this means that v in both spheres must fall, because the workers employed in both spheres consume food, and its price has fallen, causing the value of labour-power to rise. But, this fall in the value of v does not affect the new value created by those workers, and so the value of s, i.e. the rate of surplus value must rise. The first consequence of a development of capitalism in agriculture, we might then see, as being alongside this development of prices of production, as opposed to exchange values, a rise in the rate of surplus value, as capitalism reduces food prices, and thereby wages.

It, is however, already apparent that the starting point of the model has already been changed, because v + s in both agriculture and industry have been modified.

In addition, agriculture uses some of its own output in kind, as with all of Department I, to replace its consumed means of production. For example, farmers use the grain they produce also to replace the seed consumed in the production of that grain. If the price of grain falls as a result of the insertion of capital, and the transformation of prices to prices of production, as opposed to exchange values, then although the farmer has not paid anything for this seed, it still has a value, or price of production, and it is now this price of production that the farmer must consider in calculating their costs, and profit. In other words, not only will v and s have been modified in both spheres, but c will also now have been modified in agriculture, to the extent it reproduces its own means of production in kind.

Finally, to the extent that agriculture/primary production supplies raw materials to industry, these prices will also have been modified, so that not only has the introduction of capital to agriculture modified the figures of v, and so also s in industry from the initial value amounts of 1500 v + 1500 s, to maybe 1000 v + 2000 s, it also modifies c, because capital has caused agricultural and mineral prices to fall as a result of the increase in their supply relative to demand. So, now, the figure of c 1000 in industry, must be transformed accordingly, because of the transformation of agricultural sector production from prices based on exchange value to prices based on price of production.

This applies even if industry remains based on peasant petty production, as opposed to capitalist production.

“Marx assumes total prices equals total values only over the course of the entire industrial (business) cycle because prices are understated in the dormant phase and overstated in the terminal up-phase. Hope that helps.”

When Marx equates “prices” and exchange-values, he is talking about prices of production, not market prices, which fluctuate above and below the price of production as a consequence of demand and supply.

Taken on the refined basis that Marx provides in the closing Chapters of Volume III, where he tightens down his definitions to be closer to reality, the total of prices of production is always equal to the total of exchange values, because both measure exactly the same totality of labour-time, using the same money as unit of account.

Boffy, I respect your readings of Capital as I have made clear. However, the impression I get from Volume 3 is a consistent view by Marx that in the early deflationary period of the industrial cycle as Marx called the business cycle, commodities exchanged at market prices of production (depressed rate of profit) below their market values, and at the later inflationary phase of the cycle the opposite occurred. I will continue to assume that total market prices of production will equal total market value only over the course of the cycle. Capitalism may be chaotic but this chaos also makes it complex.

Market prices and prices of production are two different things, just as exchange values and market prices under simple commodity production and exchange are two different things.

The exchange value/market value of a metre of linen, for example, may be £1, whilst its market price at any one time may be £1.20, or £0.80, as a result of Fluctuations in demand and supply. Marx’s point is that these variations of market price average out to the exchange value, over a period. The same applies to where prices of production replace exchange value as the locus around which these fluctuations of market prices occur.

However, these fluctuations in market prices, do not change the fact that the total of prices of production, constantly equate to the total of exchange value, because a fall below exchange value/price of production, in one sphere, simply results in a variation above value, price of production in some other sphere.

This is a separate question to whether reproduction itself breaks down, i.e. whether a crisis arises, in which case value itself is not created, because the labour expended was not socially necessary.

“However, these fluctuations in market prices, do not change the fact that the total of prices of production, constantly equate to the total of exchange value, because a fall below exchange value/price of production, in one sphere, simply results in a variation above value, price of production in some other sphere.”

If this were true then there would be no business cycle at all, let alone crises. That is the fantasy world that still gets taught in some Economics 101 courses where fluctuations are smoothly balanced between different spheres by the benign invisible hand of the market.

In the real world there is a business cycle in which prices as a whole sometimes move together increasingly above their average “value” over the whole cycle, and sometimes move together down below their value. Within those alternating phases there are periods when profits are rising because output prices are rising faster than input prices (including wages) or falling slower, alternating with phases when profits are falling because input prices are falling faster or rising more slowly than output prices. Sometimes inputs and outputs can even briefly move in opposite directions. There are also contradictory or at least lagging movements between Department 1 and Department 2 as a whole, not just individual sectors or the economy as a whole.

These phenomena were repeatedly emphasized by Marx.He could not ignore them because they were the subject of DAILY business news and commentary then as they still are now. His aim was to explain them, not pretend they were not a regular reality.

Since the Great Depression and second world war these wave like movements in prices as a whole have not taken the same form puncuated by crises but have been accompanied by inflation alternating between “demand pull inflation” in a boom and “cost push inflation” in a recession.

We need to explain that. My view is that the “Keynesian” measures Hilferding argued could avoid crises did in fact only postpone while also prolonging and so intensifying the disproportions and therefore also the intensity of the eventual crisis, without which there the disproportions could not be resolved, as Maksakovsky argued. The postponement has lasted a lot longer than anybody expected and we should expect the eventual crisis to be pretty intense.

Others may have different analyses and expectations.

But ignoring this stuff and instead blithering about a transformation problem and long term trends of values instead of cyclic wave like movements in prices as a whole above and below values when discussing the disequilibrium expressed by the business cycles makes “marxians” at least as much of an irrelevant joke as “Economics 101”.

How is it even possible to discuss value or price with peoplewho insist that “the total of prices of production, constantly equate to the total of exchange value”?

One might as well discuss whether the transformation of value to production price is an expression of the transubstantiation of the holy spirit into flesh and whether this transubstantiation should be understood literally or only metaphorically.

As written I read that as (2*GO-GV)/GV and cannot relate it to turnover.

In terms of the usual c, v and s I would assume GO = c+v+s +d where d is the component of c representing depreciation of the fixed capital, F. Both d and F are so hard to deal with they not included in statistics like those for GO and GV in national accounts.

I am using lower case for flows and upper case for “stocks” (or rather advances – integrated net flows).

I would define turnover as simply t= c + v + s. Rate of turnover would be a ratio of t to some Stock (both numerator and denominator are hard to actually measure due to difficulties with F and hence d and hence also c – but still of interest in conceptual theorising).

I agree on the importance of turnover and that central banks understand how to avoid or rather how to respond to and mitigate inventory cycles (which were also closely analysed by Marx and accordingly called “Kitchin cycles” to avoid acknowledgement).

Maksakovsky pointed out that when most capital advanced was circulating rather than fixed (18th century) there was no regular cycle with crashes because inventories and working capital easily adjust to current prices and so tend to equilibriate in the manner apologists pretend remained true despite the regular overproduction crashes from 1820. That pattern only became dominant after fixed capital had becoe dominant (because it can only adjust to current prices with long lags.

With fixed capital any underproduction in Department I actually intensifies the gap between demand and suppy and thus reinforces the price signals to keep shifting capital to Department I as it increases demand to construct new plant while not adding to the supply of new plant until much later at which time the overshoot excess of new results in an overproduction crisis and crash of prices that go from way above value (“production price”) to way below.

This is familiar on a sectoral basis – eg regular resource booms with predictions of “peak” whatever at high resource commodity prices followed by new mines etc coming on stream and prices falling. In shipping the cycle has been more like 2 years and so looks like an inventory cycle. In agriculture there are regular “Hog cycles” and “Corn cycles”.

But an economy wide (or global) inventory cycle seems to contradict the fluidity of inventory whereas you seem to be sugesting that this should be the focus rather than fixed capital?

So I am curious on what you mean precisely, and also where the figure of “one third total” for circulating capital comes from.

On meaning, one could measure a turnover rate of the flow of circulating capital to the stock of fixed capital as c/F. Also one could add Input stocks, Output Stocks and Merchant stocks (including goods in transport) to Working apital for a meaningful and possibly even measurable Total “stock” of circulating capital. But stocks are not “turnover”. Any “total” flow I can think of would be c itself.

What is c or wharever you mean by turnover supposed to be one third of? How is it and whatever you mean by the “total” measured and where can I look at the stats giving one-third?

My impression (with zero empirical work) is that the general move to “just in time” results in ratio of T=I+O+M+W for the total of input, output and commercial stocks plus working capital to F or F+W being far lower than it used to be, probably measurable and probably far less than any one third of any guess that might plausibly be made for F or F+W.

(Of course current prices never actually correspond to values ie “production prices” and certainly not in as bizarre a conjuncture as currently. But I am assuming that could be treated as a measurement issue while the conceptual point could still have some meaning that I don’t understand but could be explained to me).

The turnover issue seems rather less an important when you keep in mind that Ucanbe’s calculation of the rate of profit adjusted for turnover closely tracks with the rate of profit calculated without the adjustment for turnover. The trend is what counts here as the law expresses itself as a tendency and not as an “absolute.”

FWIW, I think the simple way to adjust for turnovers is to look at the bill paying times, duration from billing to payment, of corporations in the US.

The WSJ periodically runs articles about the lengthening, or shortening, of those cycles.

I still don’t understand at all. How do you (sartesian) relate Ucanbe’s formula to rate of profit with or without adjustment for anything? I assume it means something but it literally doesn’t mean anything more relevant to me than E = mc^2 would in this context.

Reason I am curious is that I do think turnover is very important for understanding the dynamics of the cycle.

I do understand billing cycles and financing of working capital by terms of credit in AP and AR and its cyclical movements (closely monitored by central bankers in relation to short term end of the yield curve). Believe that is important for understanding the financial side (chapter 3 in Maksakovsky). But first have to get the “real” side straight (chapter 2 in Maksakovsky). I am assuming the turnover Ucanbe is referring to is “real” annual flows of funds, not financing changes in terms of payment. Do not understand why that assumption might be wrong.

BTW I am up late working on a very long response to earlier discussion(s) which I won’t get done tonite and won’t inflict on the thread but will just link here for you and anyone else interested. (Am also trawling through google for “sartesian maksakovsky” 😉

“I still don’t understand at all. How do you (sartesian) relate Ucanbe’s formula to rate of profit with or without adjustment for anything? I assume it means something but it literally doesn’t mean anything more relevant to me than E = mc^2 would in this context.”

Ucanbe has produced graphs of calculations of ROP adjusted for his criteria for turnovers vs. ROP without the turnover adjustments, on his website. So you can see the variance, or lack thereof, there.

The only thing I’ve written on Maksakovsky, I think, is a general recommendation of his book as an important analysis.

Thanks! It actually didn’t occur to me to look at his web site, which indicates how little I have been looking at blog posts generally for a very long time. Have now seen a series of related articles which would probably make it clear to me what it is about if my eyes had not glazed over as I lost interest.

PS Yes, earliest recommendation of Maksakovsky I have found from you so far was 2013. Unfortunately generally combined with misunderstanding about disproportionality and underconsumptionism.

Problem is that you are one of VERY few people who HAS noticed that it is an important analysis. So I have got a bit obsessed about possibility of you helping to convince others and trying to figure out what it is that you do and don’t understand and how that relates to the way others are likely to see things.

BTW I cannot resist mentioning here one theory about you that just occurred to me.

I think you may have some background related to economics of logistics/supply chain management/transport which helps you understand Volume 2 and hence also makes Maksakovsky more interesting to you than to most people whose eyes glaze over at Volume 2.

Am I wrong?

(Anyway, I strongly recommend the edX MITx series of MOOCs on “Supply Chain Management” to anyone that wants to understand how modern commerce actually works and how Marx explained it.)

“I think you may have some background related to economics of logistics/supply chain management/transport which helps you understand Volume 2 and hence also makes Maksakovsky more interesting to you than to most people whose eyes glaze over at Volume 2.

Am I wrong?”

No, you’re not. Ran major railroad terminals (both freight, and passenger) in the US Northeast for about 27 years.

Circulating capital is arrived at by dividing gross output by turnover. If gross output is annualised c+v+s then by dividing it by turnover we obtain the amount of circulating capital. So if turnover is 6 and annual gross output is $6 trillion, then working capital is $1 trillion which circulates six times a year making up the $6 trillion. In this way we can obtain the value of circulating capital compared to fixed capital.

I suggest we let the large army of statisticians at the BEA do the work for us. Crunching individual balance sheets is beyond our capacity in any case. As I can only repeat, the results obtained are confirmed by empirical sources on Wall Street. Incidentally, it is the only way to crack the rate of profit in China because their wage statistics are confusing and often contradictory. Because the composition of capital in China is lower than in the USA, the ratio of circulating capital to fixed capital is also higher. You can find the details on the following posting https://wordpress.com/post/theplanningmotive.com/500

Finally there is no dispute over the importance of fixed capital in the resolution of the crisis of profitability. My point is that circulating capital is the first responder to falling profitability, it is the trigger which brings fixed capital into play.

I don’t see how you think GO/GV+(GO-GV)/GV gives a measure of the rate of turnover. The only way to get an estimation of the rate of turnover is to actually drill down into the books of companies employed in each sector.

Moreover, the figures for GO and GV do not even give a proper figure for the value of actual gross output, for the reason that Marx explains in demonstrating Adam Smith’s “absurd dogma” that the value of commodities, and so of GDP can be resolved into revenues – wages, profit, interest rent, and taxes – only actually gives a figure for the consumption fund, i.e. the new value created by labour during the year.

What is missing, as Marx demonstrates is any value for the means of production that is simply reproduced in kind by Department I, and which forms a revenue for no one.

What we can say, as I set out in my response to Maito is that another effect of the shift of modern capitalism towards service industry as the major source of value and surplus value production, is that it results in a huge rise in the rate of turnover. Its only necessary to think of say a McDonald’s, where the product is continually being produced, and sold every few minutes – and in fact, often paid for before the product has been handed over – compared to say a shipyard where vast amounts of capital in the form of steel, and other materials, as well as the variable capital of the labour expended in processing that material is tied up for several years, before it is turned over.

You say,

“Investment is determined by the rate of profit and not the other way round or by any feed back loop.”

But that is clearly wrong. The rate of profit only determines investment to the extent that the rate of profit, or as Marx actually says, the mass of profit, places an upper limit on the surplus product, and surplus value available for such investment. Even that is only approximately true, because it does not take into account, existing stocks of money-capital that can be used to enable such investment, and so on. But, an upper limit to investment does not at all mean that capitalists will invest up to that limit.

Then as Marx sets out, there is the question of what proportion of this profit is available for accumulation after productive-capital has paid out for interest, rent, taxes as well as the necessary unproductive consumption of the capitalists themselves. A high rate of profit might encourage productive-capital to accumulate more rapidly, just as a sharp drop in the rate of profit will tend to encourage productive-capitalists to reduce investment, but it does not necessarily follow.

In Capital III, Chapter 15, Marx describes the way during a period when profits are squeezed, capitals seek to increase their own individual profits, by increasing their investment in the hope of becoming more competitive than their rivals, for example. Similarly, the rate of profit tends to rise to its highest during the stagnation phase of the cycle, when firms are introducing new labour-saving technologies. They tend to invest to replace existing machines, and reduce their consumption of labour, not to massively expand production, precisely because during such periods, they do not see a strong growth in aggregate demand. There is no point a producer investing massively in new production, no matter how profitable their current production, if they do not see the potential for being able to sell the resultant additional production at prices that enable those high profits to be realised. Its one reason that UK builders have not been hugely increasing the production of new houses, because if they did, they would find that it caused UK house prices to fall sharply, to try to clear the additional production.

“Its only necessary to think of say a McDonald’s, where the product is continually being produced, and sold every few minutes – and in fact, often paid for before the product has been handed over – compared to say a shipyard where vast amounts of capital in the form of steel, and other materials, as well as the variable capital of the labour expended in processing that material is tied up for several years, before it is turned over.”

This is correct in theory, but as all correct relations are in capitalism, mitigated by practice. Such that a) the ship manufacturer receives an initial fee when the contract is agreed to b) milestone payments are included as construction progresses c) final payment less retainage is a fraction of the total remittance.

Turnover, like everything else gets adjusted into the general, or average, rate of profit.

Overly complex and besides the point. As I made clear in a more detailed reply to Arthur, the SNA is derived from volume 2 of Das Kapital, both in detail and in methodology. I therefore find it a reliable source of data provided the necessary caveats regarding duplications and omissions are observed. As I said in one posting, Marx may have wanted the head of capitalism, but in the meantime he has given that head, eyes with which to see.

The explanation for cycles in innovation, as well as in periods of intensive rather than extensive accumulation has to be located in the dynamics of the long wave, not in some supposed influence of the law of the tendency for the rate of profit to fall.

In Capital II, Marx refers to the fact that fixed capital has an average lifespan of around 10 years, as a determining factor in the duration of the business cycle.

“This involves a change in the means of production and the necessity of their constant replacement, on account of moral depreciation, long before they expire physically. One may assume that in the essential branches of modern industry this life-cycle now averages ten years. However we are not concerned here with the exact figure. This much is evident: the cycle of interconnected turnovers embracing a number of years, in which capital is held fast by its fixed constituent part, furnishes a material basis for the periodic crises. During this cycle business undergoes successive periods of depression, medium activity, precipitancy, crisis. True, periods in which capital is invested differ greatly and far from coincide in time. But a crisis always forms the starting-point of large new investments. Therefore, from the point of view of society as a whole, more or less, a new material basis for the next turnover cycle.” (Capital II, Chapter 9, p 188-9)

The investment in labour-saving technologies is a consequence of crises, as capital seeks to remedy the Smithian squeeze on profits, by creating a relative surplus population so as to reduce wages and raise the rate of surplus value. By devaluing the existing capital stock via moral depreciation it also, thereby raises the rate of profit and annual rate of profit. But, the effect of this more effective fixed capital is to raise productivity, so that a given amount of labour process a greater quantity of materials, which is the whole basis of Marx’s law of the Tendency for the Rate of Profit to Fall, as opposed to the Smithian, Ricardian and Malthusian catastrophist explanations, which are theories of a profits squeeze, as the rate of surplus value declines.

The consequence of Marx’s theory is that this rising productivity, on the one hand causes the rate of profit/profit margin s/(d + c + v) to fall, because the proportion of circulating constant capital, i.e. materials rises, in the total value, but, this same process increases the rate of turnover of capital, which causes the annual rate of profit, and consequently average annual rate of profit to rise.

But, as I have set out recently Marx’s Law of the Tendency For The Rate of Profit To fall Is defunct, for modern economies, precisely because of this its basis. Marx’s law, applies to the kind of manufacturing dominated economies of the 19th century, he was analysing. The fundamental requirement for the operation of the law, is that the organic composition of capital rises, as new more productive equipment is introduced, which means that a greater quantity of material is processed by a given amount of labour and fixed capital.

But, in modern capitalist economies, 80% of value and surplus value production comes from service industries, not from manufacturing industries that process materials. Rising productivity in service industries does not result in an increased value of materials being processed, and so the fundamental basis that Marx gives for his Law of Falling profits disappears. The only basis for such a law would be on the kind of basis that Paul Mason sets out in his book Post-Capitalism, whereby increasing automation and robotisation results in not just the kind of relative fall in the employment of labour that Marx sets out as the basis of his law, but in an absolute fall in the quantity of labour being employed.

Such a situation can’t be ruled out, but the fact is that currently it does not exist. On the contrary, since Marx’s time, despite massive technological developments the global workforce has continued to expand massively. It has doubled since the 1980’s, making the working-class the largest class on the planet. It has risen by a third just since the start of this century. Crises of overproduction arise for varying reasons.

As Marx describes, in the initial part of the cycle, (that marx calls the prosperity phase) when the rate of profit is high, and production expands rapidly, and where the new technologies during the previous crisis phase are being introduced, the sharp rise in demand for materials can mean that either those materials are not available in sufficient quantities, or they are only available at prices that are so high that they cannot be recovered in the final product price, causing a squeeze on the realised profits, or actual losses. The same might apply even to some specific types of labour-power that might not be available, in adequate quantities.

In the (boom) phase, these tendencies can be heightened, as well as the profit of enterprise getting squeezed by rising wages, and rising rates of interest and rent. And, this becomes most intense in the crisis phase of the cycle, when existing technologies have been rolled out as part of extensive accumulation, so that labour supplies get used up, causing wages to rise, and the rate of surplus value to fall, causing the Smithian squeeze on profits that Marx describes in Theories of Surplus Value, and in Chapter 15 of Capital III.

It is in response to that that capital engages in a more intensified search for new technologies, and new uses of existing technologies, so as to replace labour, and to reduce the value of constant capital, as well as to raise the rate of turnover of capital. Because, the capital accumulation in this period is intensive rather than extensive, it does not result in the same kind of large rise in output of earlier phases of the cycle, precisely because capital is looking to replace existing machines with newer machines, not to add to the stock of machines, and is looking to be able to produce more or less the existing levels of output, with less labour, not to expand the overall level of output. Hence this period, as Marx describes is one of relative stagnation. The rate of profit falls, as the proportion of material in total output rises, but for the reasons described above, the annual rate of profit rises, and this eventually forms the basis of the next upward phase of the cycle.

In the same way that the average lifespan of fixed capital plays an important part in the duration of business cycles, so, as Marx sets out in TOSV Chapter 9, the average lifespan of other more durable forms of fixed capital, provides the dynamic for the long wave. Marx sets out there the 50 year movement in agricultural prices between 1641 and 1859, and demonstrates the interrelationship between the requirement for additional investment, not because of changes in the rate of profit, but as a result of growth of population, and the requirement for additional investment over long periods in opening up new pieces of land for farms, and mines, etc. along with the attendant infrastructure, and in turn the effect of that investment in the immediate and longer term on primary product prices.

The same thing can be seen more recently with the long wave cycle that began in 1999, as the prices of raw materials such as copper, as well as foodstuffs rose sharply, as existing supplies could not be expanded to meet the rapid growth in demand that occurred as the new boom began in 1999. It then led to the same kind of investment in new mines, and the opening of new lands for food production that has been seen in every previous long wave cycle, and resulted, as I had predicted at the time, with the same consequent over accumulation of capital in those spheres, and consequent overproduction of primary products, which caused the prices of copper,oil, iron ore, milk and so on to fall sharply in 2014, when all of
that new supply came on stream.

“so that a given amount of labour process a greater quantity of materials, which is the whole basis of Marx’s law of the Tendency for the Rate of Profit to Fall, as opposed to the Smithian, Ricardian and Malthusian catastrophist explanations, which are theories of a profits squeeze, as the rate of surplus value declines.”

Isn’t a “given amount of labour process a greater quantity of materials” ultimately the same thing as a ‘profits squeeze’?

“80% of value and surplus value production comes from service industries, not from manufacturing industries that process materials”

Doesn’t a plumber, for example, use materials and can’t his labour process, at least in theory, be automated in some way? So instead of the plumber taking 2 hours to complete a job he takes 1 hour due to improved equipment or whatever. And if these service industries are not compelled to increase output for a given input can we even call them capitalistic?

“Isn’t a “given amount of labour process a greater quantity of materials” ultimately the same thing as a ‘profits squeeze’?”

No, absolutely not, and this is precisely Marx’s argument against the catastrophist explanations of the Law of Falling Profits. This point is brought out in my current series of posts on Theories of Surplus Value, Chapter 12. In Capital III, Marx emphasises also the degree to which the catastrophists go to try to deny the difference between the two, so as to show that a falling rate of profit implies a falling mass of profit.

Marx’s point is that the Law of Falling Profits is based upon not just an accumulation of capital, but an accumulation of capital that brings about a rising organic composition of capital, as a consequence of rising social productivity that results from technological change. In other words, it is a rising organic composition of capital, i.e. emanating from a rising technical composition of capital, as opposed to simply a higher value composition of capital.

So, for Marx the Law of Falling Profits is based upon a larger mass of capital and labour being employed. The greater mass of labour employed results not just in a greater mass of surplus value being produced, but where the higher productivity also causes the value of labour-power to fall, it also results in a higher rate of surplus value, and so a still greater mass of surplus value being produced. It is only that RELATIVELY less labour is employed, and so RELATIVELY less surplus value is produced in proportion to the capital laid out to produce it. The mass of profit rises, but the rate of profit falls. Even, then, there is the countervailing forces that Marx describes in relation to the falling rate of profit. AND, as I have set out on many occasions, this is only in relation to the rate of profit, i.e. the profit margin, whereas, by raising productivity, and thereby the rate of turnover of capital, it causes the annual rate of profit to rise, because the increased mass of surplus value whilst falling in proportion to the laid-out capital, thereby also rises as against the ADVANCED capital, i.e. the capital advanced for one turnover period, because a shorter turnover period, by definition requires less capital to be advanced for it than a longer turnover period.

As Marx sets out in TOSV Chapter 12 et al, a rise in the value composition of capital has opposite consequences than a rise in the technical, and thereby organic composition of capital. An example of that is set out in my blog post linked to above, so I won’t repeat it here. Suffice it to say that Marx’s Law shows that capital’s with a lower organic composition produce a higher rate of profit than capital’s with a high organic composition, but if the organic composition rises, because wages rise, the result is not a higher rate of profit but a lower rate of profit, resulting from both a reduced quantity of labour employed by the variable capital, and a lower rate of surplus value.

“Doesn’t a plumber, for example, use materials and can’t his labour process, at least in theory, be automated in some way? So instead of the plumber taking 2 hours to complete a job he takes 1 hour due to improved equipment or whatever.”

It depends what job the plumber is doing. If the plumber is fitting a new kitchen or bathroom in a house, then yes, they will use materials in that process. In that case, the plumber is acting not as a service provider, but as a manufacturer, in just the same way that a builder in building a complete house is a manufacturer not a service provider. But, if the plumber goes to a house, to repair a leak, to maintain a boiler, and so on, they basically only use what Marx refers to as auxiliary materials, as with say oil used to lubricate a machine. These auxiliary materials form only a minor component of the total value, and do not increase proportionate to the output.

In the next part of my series of blog posts on “Why Marx’s Law of The Tendency for the Rate of profit To Fall is Defunct”, which will appear on Sunday, I describe the situation in relation to a hotel. In short, if technology improves so that a 200 room hotel can be built for what it now costs to build a 100 room hotel, if the productivity of hotel labour remains constant, twice as many hotel workers would be required, causing c:v to fall, and causing the mass of surplus value, and rate of profit to rise. If some similar improvement in technology enables the existing hotel labour to service these 200 rooms, then c:v remains constant, and the mass of surplus value, and rate of profit would remain constant, whilst the value of a hotel room would halve, threeby containing only half as much in wages, profit and fixed capital as a current hotel room, whilst the total for the hotel itself would remain constant. However, because any such rise in the level of technology might be expected to bring about a rise in social productivity in general, that would cause a fall in the value of labour-power, and a consequent rise in the rate of surplus value, so if the quantity of hotel labour remains constant, it would produce a greater proportion of surplus value, as hotel wages fell, and so there would be a rise in the rate of profit.

” And if these service industries are not compelled to increase output for a given input can we even call them capitalistic?”

I didn’t say they were not compelled to increase output for a given input, only that the increased output does not require the proportional increase in circulating constant capital (raw materials) that occurs with manufacturing industry, and which is the fundamental basis of Marx’s Law of Falling Profits. The main input of a service industry is labour-power, and each service industry is compelled by competition to raise its productivity. But, the consequence of that is a) to reduce the value of each unit of output, as with the example of the 200 room hotel as opposed to the 100 room hotel, and b) to cause the value of labour-power to fall – especially because it is services that comprise a large component of workers own consumption, and the value of those services declines – thereby causing the rate of surplus value to rise, and the rate of profit to rise along with it, because there is along with it, a fall in the value of fixed capital via moral depreciation, and no countervailing rise in the proportion of materials in the value of final output.

There could only be a fall in the rate of profit, therefore, if it went along with a fall in the mass of profit, as labour was absolutely reduced, as a result of this technological development, rather than only relatively reduced. But, it isn’t, at least currently, though if robots come to rule the world, it would.

As I set out in my reply to Maito, when my wife first started working with mainframe computers in the early 1970’s, the machine she worked with cost around £2 million, and employed a handful of operators, programmers, and data entry clerks. By, the mid 1980’s, a run of the mill PC costing £500 was more powerful than that mainframe computer. It meant that 4,000 of those PC’s could be bought for the same price as previously was the mainframe computer. The difference being that those 4,000 PC’s employed 4,000 operators, rather than the handful of operators and programmers employed by the mainframe, and each of those 4,000 workers produced surplus value, and profits. The same thing can be seen with the reduction in the cost of DNA sequencing which has fallen from around $3 billion to around $1,000, and is forecast to drop to around $100 in the near future, which has now led to the development of whole new service industries, employing thousands of people.

”In the next part of my series of blog posts on “Why Marx’s Law of The Tendency for the Rate of profit To Fall is Defunct”, which will appear on Sunday, ” And here I was thinking of going to church to pray for those lost souls who engage in the unpardonable sin of Marx quotation mongering!

Of course, it would not be so necessary to commit the mortal sin of Marx quotation mongering, were it not for the fact that experience shows that there are so many epigones prepared to distort what Marx actually said, so many who have been ordained in the churches of the epigones, and who repeat their respective dogmas as ritualistic chants, and so many trolls who are more than willing to use any possible ambiguity as a means of trying to engage in pointless flame wars, and who utilise various sock puppets as means of trying to induce the unwary into such debates over angels and pinheads, and Inquisitions over their ability to look into people’s heads in their ridiculous arguments over who said what to whom, and what they actually meant when they said or didn’t say what is claimed for them!

Problem with quote mongering is not that it is a mortal sin but that it reinforces widespread perception that BOTH those distorting what Marx actually said and those repeating what he actually said are engaged in a theological dispute over holy scripture rather than a scientific theoretical dispute over how to interpret and change the world.

Occasionally worth correcting a misconception about the meaning of a paragraph. But usually the reason people misunderstand what was actually said is fundamentally because they believe something else and read things in the light of what they think they already know and do not understand what they don’t agree with.

Several separate issues are being conflated.

1. Is there a (long term) TFRP (with countervailing tendencies). I gather Boffy thinks it is no longer relevant. Fine. Quoting Marx won’t help much as you only need to prove he has not taken into account subsequent developments that made it irrelevant. Don’t need quotes to do that and attempts to prove he was wrong from the start aren’t helpful. I happen to think Marx got it right and its still right but obviously I won’t convince anybody by merely quoting him as an authority for the proposition that he got it right when they think he got it wrong!

2. Does TFRP explain “long waves”? I gather Buffy things it does not because it is not relevant at all. I think it obviously does not since long waves are supposed to alternate in direction whereas TPRF is a long term trend in one direction (with counter-vailing trends). Quoting Marx either way cannot help since he was explaining the regular short cycle not discussing any claims made much later about long cycles.

3. Does TFRP explain the regular business cycle and crises? It doesn’t include any sort of explanation of their characteristic cyclic succession of phases of recovery, prosperity, boom, crash and depression leading to another such cycle. Just a long term trend down (with countervailing tendencies), not cyclic. I don’t see how a non-cyclic theory could explain cycles but would have to first understand what people who do say so think rather than what Marx thought.

Would welcome any comments from anyone interested, either here or there.

I asked an advocate of the theory:

“Specifically, what do you say is the explanation for profits regularly RISING in subsequent cycle? It isn’t a theory of the cycle without that. (LRTFRPTF would explain not reaching the same height as before and/or falling to greater depth than before, but does not directly shed any light on the cyclic movement let alone the crises in that cyclic movement).”

Reply was:

“There are: the structural tendency of the rate of profit to fall; , the “offsetting tendencies;” the actions by the bourgeoisie to implement the “offsets;” the recovery of profitability; usually to a level below that of the previous peak, and thus the repetition of the process– itself a cycle.

This: “It is that periodic wave of fixed capital investments in more capital intensive technology after a crash that sets the stage for the next cycle to be at a higher organic composition and lower average rate of profit. This cycle explains the LRTFRPF not the other way round.”

I agree with in total.

At the same time, my explanation for the recovery is pretty much the above, with the initial introduction boosting rates of profit as lower production costs transfer profits from “older” to newer [in terms of technology] enterprises, and then overproduction sets in, see for example the boom and bust history of semiconductor fabrication and sales.

I think there is an intersection, a conjunction so to speak, between the longer term tendency of the rate of profit to fall, i.e. the period since 1970, or 1973, and short term cycles where fixed capital investment leads to overproduction and the immediate decline in profitability. Again, see the intersection of these forces in the history of semiconductor fabrication and sales. IMO, I think that’s what Marx was getting at in Volume 3, and the Grundrisse.

Guess I’ll have to read Maksakovsky again. There are worse things.”

At the moment all I can extract from that is that there is a long wave as well as the regular short business cycles. If the cycles help explain the long term trend it makes no sense to me to claim that the long term trend is a theory of the cycle. It has rather been incorporated in the theory of the cycle. (Likewise aspects of disproportionality, underconsumption and profit squeeze are simultaneously suspended or refuted while the aspects of reality that they did correspond to are included in the superceding theory).

I hope to have a better understanding of what the opposing idea that TRFP as a theory of the cycle and crisis means either from others elaborating in response to this and linked post or from studying Anwar Shaikh’s book.

Quote above was only off the cuff so I am not ruling out the possibility that it means something more that I don’t yet understand but will eventually understand AFTER which I might be able to convince others that they are wrong.

I don’t hope to either gain understanding or spread it by quoting Marx since Marx was not attempting to respond to the sort of views that have become common now (often bizarrely claimed to be “Marxist” but that is better simply ignored than given credibility by relying on Marx to refute it).

To avoid giving the impression that I either accept people’s labels as Marxist or wish to get into an argument about it I just use the neutral expression “marxian” (which helps remind me to avoid openly denouncing them as alien intruders from the planet Mars without having to convince myself that I should not even think that quietly to myself and perhaps even hint that the question of alien origin has been left open).

There is a useful article by Ken Tarbuck on Bukharin’s “Economics of the Transition Period.” I don’t know if you can still get hold of it. It was in an edition of Permanent Revolution, a magazine at that time produced in the 1970’s, by Workers Fight. If not, Tarbuck also provides the Introduction to Bukharin’s work, in many editions.

The importance of it, is in relation to this question of the rate of turnover, and the annual rate of profit of economies. It was also at the heart of the industrialisation debate in Russia in the 1920’s. Marx also covers the basic ideas in Capital.

Tarbuck elaborates the way an economy that has a lot of its capital tied up in particularly heavy industry, which takes a long time to turnover, thereby reduces its general annual rate of profit. Marx also elaborates this point in discussing the role of different rates of turnover of different spheres in causing disproportionality. Take an economy where a lot of capital is employed in building a bridge. During all the time the bridge is being built, it requires steel and other materials for its construction, and all of these mean that value is being extracted from the economy. The same is true of the wage goods being bought by the workers employed in the construction. But, the bridge during all this time is throwing no value back into the economy.

The capitalist building the bridge must have capital to build the bridge, which is used to buy materials, and to pay wages. The workers spend their wages with other firms, and in buying materials, the material suppliers also obtain revenues. But, their is no counterpart to this value, being provided by the bridge builder. Marx says that, in such circumstances, the firms and their workers etc. who receive this revenue from the sale of wage goods and materials, may then look to spend it on imported goods, because the domestic capital is not providing the equivalent, having been tied up in building the bridge.

Marx gives another example in relation to house building. The smaller house builders would originally have been paid stage payments for houses they built individually for clients, but Marx gives examples of how as lagrer capitalist builders became more dominant they would build large numbers of houses speculatively, only turning over their capital when they sold the house. But, as Marx points out, even where such stage payments might be made, this does not change the underlying situation that the value itself tied up in the capital that is taking a long time to turn over, still is not entering into the economy. A capitalist who asks a builder to built them a new factory, may pay the builder stage payments, as the building is erected, but that does not change the fact that until the factory is built, it puts no use value, or value back into the economy. All that happens here, is that the capitalist who is having the factory built ties up a part of their own capital in stage payments, rather than the capitalist builder having their own capital tied up. For all that time, the capital itself is realising no profit.

This was the issue that Bukharin, Preobrazhensky and others argued over in the 1920’s, in relation to the industrialisation debate in Russia. The more capital is tied up in these big construction projects, the lower the rate of turnover, and so the lower the annual rate of profit, and the lower the potential thereby to expand the capital. It doesn’t actually matter here, whether in the case of Soviet Russia you define the means of production and means of consumption as capital, or as means of production etc., because the underlying value relations, and laws continue to apply, i.e. the value of the means of production remains tied up, along with any produced surplus product.

An economy that is able to have a higher proportion of its capital involved in activity that has a higher rate of turnover will, thereby have a higher annual rate of profit, and so a greater potential to accumulate capital, than an economy where a larger proportion of its capital is tied up in these big projects that have long turnover times. Similarly, the more an economy, is able to raise its average rate of turnover, the more it will raise its average annual rate of profit and growth potential. The relative decline of agricultural production, and then industrial production, as a proportion of total capital, and the growth of service industries, has brought with it, an inevitable rise in the annual rate of turnover of capital, and a corresponding rise in the average annual rate of profit, as I pointed out in my responses to Maito, cited in the link provided previously.

You have to be very careful with this assumption. 80% is overstated because much of this value has been transferred from the goods producing sector. This becomes clear when you compare gross output rather than gross value added as gross output includes these transfers in the form of intermediate sales. Go to BEA interactive data, GDP-by-industry, Gross Output.

The nature of service industry, is that only a small portion of the value of its output is accounted for by material inputs. Secondly, a look at the proportion of employment shows similar figures of around 80% employed in services, around 1% in agriculture,and the rest employed in industry, transport etc.

You could say a lot of the materials in industry comes from agriculture and mining, but that doesn’t mean that agriculture and mining still accounts for a large part of value production.

4. Your third paragraph quotes the main fragment of Capital (Vol 2, Ch9, p188-9 which Maksakovsky nailed down into an aspect of a systematic theory rather than a hint/speculation. I just wrote fair amount specifically on that intended for discussion off thread when I finish the rest as I thought only artesian and I were interested in it.
Here it is:

6. This thread also includes stuff from Boffy that indicates he is also studying business cycle and crisis seriously and could also be interested and helpful. Not quoted below.

7. sartesian Says:
May 21, 2014 at 1:00 pm

8. “It arises because fixed capital does not wear out at a uniform rate. The consequence is that Department II producers recover the value of the wear and tear of their fixed capital in the value of their production, but this value is hoarded as money-capital, until it is required. At the same time, some Department II capitalists are using previously hoarded money-capital to buy large amounts of fixed capital without putting an equivalent amount of value of commodities into circulation. Some are buyers but not sellers, whilst others are sellers but not buyers. Provided the two balance out every thing is fine, but the chances that happens is remote.

8. Marx specifically says, that the cycle for the replacement of such increasing quantities of fixed capital is the basis of the business cycle.”

9. Here is one of the problems I have with “disproportion theory.” Supposedly, at one and the same time, a “crisis” is created in the different rates of devaluation of the fixed assets, which devaluation occurs as the fixed assets transfer their value to commodities through the consumption of their use value in the production process. At the same time, apparently, the wear rate is uniform enough to become the basis for the business cycle.

10. I think “capital” itself “resolves” this issue through 2 mechanisms: 1) credit– Marx notes that the origin of credit is in the different circulation times of capital, and the need of the capitalists to reduce that time to as near zero as possible 2) prices of production– where, in agriculture for example, the price of fertilizer, seeds, pesticides, machinery increases faster than the price of agricultural commodities.

11. Anyway, the best book on the “business cycle” is Maksakovky’s The Capitalist Cycle– and he does hold to a theory of disproportion. At core, though, disproportion really is another theory of under-consumption, something that comes through Maksakovsky’s brilliant exposition of the business cycle. What you are left with at the conclusion of disproportion theory is “supply and demand,” and the so-called “laws of supply and demand.”

12. Capitalism is always a system that is “overproducing” and “u nderconsuming.” The key to the barrier capital creates for itself in its need for accumulation is in the changing proportion between the components, the exchange, that is indeed capital– that is labor power configured as wage-labor, and the means of production configured as capital– as a CONDITION of labor opposed to the laborers themselves.

[end artesian excerpt, start Arthur]

13. I don’t understand what the two numbered points on credit are about at all.

14. But immediately preceding those two is response to comment (from Boffy) about Marx’s fragment on relevance of fixed capital replacement as basis for cycle. This is a useful reminder to explain that issue carefully (and probably also that it should be related to nature of “Disproportionality” as it is here).

15. Marx’s fragment seemed to be merely noting that there is likely to be some connection (partly based on detailed analysis of different fixed capital replacement periods in the reproduction schemes, partly just on speculation about an “average” lifespan being similar to common lengths of the cycle.

16.Maksakovsky nails the connection down much more precisely than Marx’s hint/speculation by connecting it with another Marx fragment pointing out that once set in motion at all the phases of the cycle lead to each other like the phases of a pendulum swinging (or planets orbiting under gravitational attraction) and so result in repetition of the same sequence (not necessarily with a fixed period as the length of each phase and hence of each total cycle will depend on circumstances).

[Drifting off …]

17. Marx refers to planets orbiting, Maksakovsky to value as the law of gravity for prices. I think pendulum fits better than planets for visualization of this “gravitation”.

18. Would be nice to link production prices with average rate of return on “mass” of advanced capital to curvature of spacetime. But probably NSFW except among STEM graduates. Need visual model with a combination of multi-coloured solids, jelly and fluids pulsating cyclically something like a beating heart mixed with an embryo morphing as it grows. Hopefully STEM students can help with that once we have a minimal toy mathematical model.

[Returning from drifting…]

19. So Maksakovsky, like Marx, just takes it as a well established empirical fact that the pendulum has been started swinging and simply explains how each phase leads to the next.

20. Details of that go in a reading guide for chapter 2. But the specific connection with fixed capital “wear rate” (ie physical depreciation rate/reciprocal of lifespan) is as follows.

21. Observable empirical fact is that despite very different (and very stochastic) individual lifespans replacement does NOT happen at all uniformly with nicely overlapping expiry dates.

22. NOR is it just a matter of roughness in the unsynchronized overlaps as “shocks” to an equilibriating system (see standard DSGE models). Not even earthquake like shocks from tectonic plates clashing.

23. Actual data shows fixed capital replacement happening in very bunched up waves unrelated to physical lifespans but highly correlated with cycles. Maksakovsky explains that the correlation is a causation (both ways, causing the pendulum to alternately rise and fall)

24. There IS a massive wave of replacement starting some time after a crisis. Maksakovsky explains that this RESULTS in initial disproportions that initially replace the depression with recovery and prosperity (which lead to boom, bust and another cycle).

25. Key point is that this wave is CAUSED BY a LOT of fixed capital being replaced when it becomes technologically obsolescent (“moral depreciation”) LONGBEFORE it physically wears out. This happens on a large scale following a crash that makes profit rates fall more than wages thus favouring more capital intensive technologies and at the same time contracted markets so that only the lowest cost producers can remain in business and can only do so by taking market share from others by not leaving their prices as high as they would otherwise like to.

26. So effects become causes and causes become effects and the cycle repeats, just as Marx said (and as every dialectician has said about everything that exists and so reproduces itself going back to Heraclitus on everything being transformed to and from fire just as everything can be transformed to and from gold – dialectics and commodity production developed together).

27. This is a MUCH more sophisticated connection between fixed capital replacement and the cycle than what might be generally understood as a “disproportionality theory”.

28. Have dealt with claim that “supply and demand” is “really another theory of under-consumption” in another thread (not coopied below). Am still perplexed though. Seems obvious from long before Marx that prices DO emerge “turbulently” as Anwar Shaikh emphasizes from fluctuations in supply and demand, ie production and consumption and that value, as Marx repeatedly emphasized is an emergent phenomena reflecting the underlying necessary global proportionalities of socially necessary labor for reproduction (letter to Dr Klugman). So value can be measured only as averages of those ceaseless fluctuations (in opposition to Ricardian theories of “embodied” labor, physiological costs, subsistence basket etc etc).

29 “Marxians” seem to have some sort of mental block about this, hopefully as an allergic reaction to the fact that mainstream does not and gets a thorough dose of “supply and demand” so people escaping from mainstream economics courses should have less trouble grasping Marx’s obvious point that prices and profits are above value in booms and below value in busts and that this is a pendulum like cyclic phenomena that MUST reflect underlying disproportions between supply and demand, production and consumption.

30. What else are values supposed to be other than a theoretical construct for the absence of disproportionality so that there is no pressure for a price change in any particular direction? There is some serious conceptual problem here if “marxians” are ever to understand Marx. But hopefully it will not be such a mental block for others.

[Following added in specific response to Boffy comment above]

31. Note that above incorporates a lot of what Boffy understands from Marx but differently in some aspects. eg

32. Does not depend on high wages actually precipitating the crisis. Does involve accompanying it.

33. Underproduction in boom phase does not squeeze but rather amplifies high profits which go together with high wages (both are above value not at value as NOT in equiibrium so move together not oppositely as they would if not departing from value).

34. Crisis and crash in prices, incomes and production comes when overproduction breaks out with new plant construction completed and ready to pour additional output into market with no corresponding increase in demand.

35. Not in response to boom but to changed prices following crash that previously economic labor intensive technology becomes obsolete and gets replaced by construction orders for new plant that wil replace it with existing more labor intensive techniques, not necessarily new discoveries.

36. That provides basis for the phase of recovery and then prosperity and repeat of the cycle. This is inherently missing from LRTFRPF theory of crisis since a long term trend just doesn’t account for a cyclic recovery.

37. I will leave it there. Assume anything totally unintelligible above is due to having me already taken sleeping pill before seeing Boffy’s comment. Too tired to proof read.

To fill you in on the background, Boffy considers me a troll, a sock-puppet, and various other unsavory things, which is fine by me although I am not any of those things. For my part, I think any contact Boffy’s analysis has with the actual material functioning of capitalism, or Marx’s critique there of is pure accidental.

It’s highly unlikely he is going to engage in a conversation in which I am included.

Doesn’t stop him for answering “roundabout” by addressing his answers to somebody else– but you should know that there’s a history of bad blood there.

Well I’m happy to engage both of you and anyone else in whatever form works out. Happy to do it separately if either of you doesn’t want to do it jointly.

I have also remarked here on Boffy excessive quote mongering which probably doesn’t help me make friends and influence people. I initially thought it was ONLY that and did not attempt to engage. But while collecting above for discussion with you I noticed that although Boffy was in fact, like you and everyone else I know of, wrong about everything, he was also, like you, seriously reading the right bits of Marx and actually thinking about it, which is rare.

In comments on part 1 of this series of Michael’s posts you and I briefly exchanged comments after I said the antiglobalist “left” was being Trumpist in hostility to rise of bottom half of global working class relative to those in advanced countries, which could have been regarded as trollish.

BTW I have a vague recollection of previous encounter with you over completely unrelated issues (Syria at Northstar) in which I think we formed and stated reciprocally low opinions of each other.

Also just came across clash between you and Louis Proyect which reminded me of also clashing with him (also at Northstar) and him subsequently politely sending requested copies of articles on Maksakovsky from his access to Historical Materialism journal via Columbia.

There will be a large audience wanting to understand and then work on developing theory of the capitalist cycle as this cycle develops and personal differences in style and views among the few who now have any serious interest in and sufficient comprehension to be able to help by seriously discussing theory of the cycle now really won’t matter then and so should not matter now.

This stuff is science and scientists have to engage in a struggle to refute each other’s ideas in order to help refute their own and advance science. This can sometimes look trollish, but should never actually be trollish.

Isn’t it remarkable that Marx could anticipate the disruptive impact that finance capital, fictitious capital etc would have on the accumulation of capital, but couldn’t anticipate the obsolescence of what he called the most important law of capital accumulation– the tendency of the rate of profit to decline? Truly noteworthy. One might ask, when did the law cease to have relevance to capitalism? Was it sudden, as in 1952 the law did apply, but in 1953 the law no longer applied? Or was it gradual, that the law governed less strenuously over a period of time, and still might apply now in various restricted circumstances?

And if the law no longer applies because the “bulk” of value production is no longer industrial (or material) but is in the service sector, what does that say about the law applying in the PAST, when the bulk of capitalist production was not industrial– like AROUND the world until the 20th century. Did the law apply in the US when the largest contributor to economic output was agriculture? Did it apply before the early 20th century (around 1910 IIRC), when most of the population in the US lived in rural areas?

Details, details, details…. these sorts of fantastic formulations by Boffy are exactly why I think any contact between his “Marxism” and the actual dynamics of capital accumulation, and the critique of capital accumulation, are random, tangential, and wholly accidental.

Does anyone have any information to support the notion that the tendency for the rate of profit to fall is no longer operative because manufacturing has declined so dramatically as a portion of capital’s output? Does anyone have any real data to support the notion that fixed assets are “less important” to a)the capitalist cycle b)the secular trend of the rate of profit because so-called service industries a)contribute so much more to capital accumulation and b) such industries are “fixed asset light”?

Would love to see it because my preliminary research indicates otherwise.

Typo in 35. “…replace it with exising more capital intensive techniques not necessarily new discoveries.”

Not “more labor intensive”

Point is that accumulation necessarily takes a cyclic form in which the necessary development of the productive forces by shift to a higher organic composition is manifested by the low rate of profit relative to wages following a crisis obsoleting existing labor intensive plant by new capital intensive plant that suddenly becomes more economic after that crash.

This both incorporates TLRPRF and reverses it. Not the increased organic composition causing the cycle but the cycle causing and being caused by itself (like any other cyclic reproduction) and so causing as well as being caused by the rising organic composition (but with profit rates moving in opposite directions within the overall long term decline during different phases of the cycle).

I have seen an article of yours these days in the No Permit review ” Economic forecasts for 2018: the trend and the cycles ”. In the speech of the existence in the social economy of 4 cycles: Kitchin cycle of 4-6 years // Economic cycle, 8-10 years // Profitability cycle 16-18 years // Kondratiev cycle), .54-72 years. In addition to possible cycles caused by specific national factors.
I will give you, in summary, one more cycle for your opinion and analysis. That cycle will be the revolutionary cycle, or cycle of class struggle. Some scattered ideas about the. – Duration: could be more than a century. The last cycle in progress: Since 1.917. Socialist revolution Other cycles: 1789 French Revolution. 1688.- Glorious Revolution in England. Phases of the Cycle and its duration: Progressive and Regression. Progressive phase: in Europe from 1917 to mid 80 (end of Urss). Reactionary phase: 80s to ¿??? ‘
Effects: In progressive phase expansion of wealth (capital and income) to greater layers of society. The (legal) property of capital expands towards more population. Example: 1917 Socialist revolution. Ownership of productive capital (enterprises) extends from private capitalist enterprises to the social property of the State. The economic data of the social majority of a country, 80%, middle and lower classes (and the whole country) are expanded and multiplied: annual GDP (5, 5% per year, 1945 to 1975. The Thirty Glorious OCDE) almost full employment, rising wages, housing, education, health, pensions … etc … and … the population (births) multiply: demographic boom 2nd half of the twentieth century. The world population is multiplied by 3.
In the recessive phase: ALL the economic indices of the social majority (middle and lower classes) fall back, fall, except the economic data of the elites. Secular stagnation?
Why is there a recessive phase? Socialist Revolution: the economic agents of the previous status quo, the private companies, still own the majority of the productive capital (OECD 10% possesses 90% wealth and the impulse generated by the revolution is sabotaged, damaged and pressured to retreat: Liquidation of the USSR , Welfare State privatization and public enterprises, salary cuts, etc … It is a contraction of the ownership of capital which passes from social property (State) to, again, private property.
Geographical scope of the cycle and its intensity. Very intense in km. O of the revolution (USSR, China, .etc ..) and softer geographical remoteness: Europe and its Welfare State, Nordic Model.
Some authors and related regencies. Rolando Astarita (Argentina) // Xavier Arrizabalo (Spain). My talks with them about the revolutionary cycle. They do not approve 100% of the cycle (lack of regularity of the cycle, there is no reliable database, it is not systematic) but they do not deny or deny its existence.
Peter Skott ” Effective demand, class struggle and cyclic growth * // Ernst Mandel ‘The long waves of capitalist development. The Marxist interpretation // Rosa Luxemburg. Reform or Revolution, its cycle (impulse) revolution-reform-counterreform.
Best regards,

(I could not find item it listed with other Bukharin works at Library Genesis – suggest uploading it)

2. Appendix 2 mentions marginal notes critique by Lenin. I can only find reference for that from footnote 200 to page 146 of Robert Service “Lenin, a Political Life – Vol 3” which is in Library Genesis:

Link provided in that comment is broken (it is for editing the post, not for reading it).

I don’t agree that working capital can be calculated the way ucanbe does. The c + v + s schemes in Volume 2 abstract from both fixed and working capital (as stocks or integrated net flows) and express ONLY flow of turnover for a given period (eg one year). This is a necessary stage in ascending from the abstract to the concrete but as Engels mentioned, best postponed until after reading Vol 3 (even if serving a prison sentence as Victor Adler was when given the advice).

Turnover can probably be calculated from input output tables that are a separate part of national accounts (and did indeed derive quite directly from Marx’s work in Vol 2 following original inspiration of Physiocrats). Main problem is depreciation which depends on fixed capital which has meaningless book values and cyclically bizarre variations when actual current capitalizations at current rates of return are used (gyrates with stock market).

Most discussion has bizarre misconceptions as though the Vol 2 schemes were also assuming something about the stocks of fixed and working capital (and as though values are rather than the movement of market prices above and below during business cycle express crisis).

The chapters on reproduction schemes are pretty unreadable due to Marx’s insomnia. There are very detailed accurate summaries at:

There is another reference in Stephen Cohen – Bukharin and the Bolshevik Revolution – A Political Biography 1888-1938.

Gives date for Lenin’s “recensio academica” notes on Bukharin’s book to its publisher the Communist Academy – 31 May 1920 (see below). Headline was “a spoonful of tar” (Russian proverb – ruins a barrel of honey).

I had to lookup “recensio academica” and found english google translations of Russian blog posts and wikipedia’s biography of Bukharin with this quote recommending that the publisher issue a fixed edition:

“Lenin’s comic review of the book The Economy of the Transition Period is of interest, in which Bukharin’s fascination with foreign vocabulary is parodied:

“The excellent qualities of this excellent book experience some de-qualification, since they are limited by the fact, primo, that the author does not sufficiently substantiate his postulates …”

– From Lenin’s “Recensio academica” on the book “The Economy of the Transition Period””

===
Recensio academica (Bolsheviks joke or the origins of Thermidor)
This review was referred to by Comrade Stalin himself:

“Recensio academica [1]: The excellent qualities of this excellent book experience some de-qualification, since they are limited by the primo [2] circumstance that the author does not sufficiently substantiate his postulates with solid, at least short, factual material, mastering it in perfection in literature. A large factual basis would save the book from defects in the aspect of “sociological” or, more accurately, philosophical. But this is secundo [2]: the author considers economic processes inadequately concrete in actu [4], often falling into what is called “terminus technicus” – “Begriffsscholastik” [5], and not realizing that many unsuccessful formulations and the terms are wurzeliruyut in philosophy, falling sub specie “Grundgedanken” [6] under the line idealismi philosophic! seu agnosticismi: (recht oft unbesehen und unkritisch von anderen übernommen) [7], by no means materialismi [8]. It is permissible to express the hope that this small defect will disappear in the following editions, which are so necessary for our reading public and will serve to an even greater honor of the Academy [9]; We congratulate the academy on the excellent work of its member.
31 / V 19xx. ”
_____
[1] Academic review (German).
[2] First of all (lat.).
[3] Secondly. Ed.
[4] In Action. Ed.
[5] “Technical term” is “a game with concepts.” Ed.
[6] Under the guise of “profundity”. Ed.
[7] Philosophical idealism or agnosticism: (very often inadvertently and uncritically borrowed from others) (German). Ed.
[8] Materialism. Ed.
[9] This refers to the Communist Academy of Social Sciences.

Shl
In fact, it was a little more, but this is the conclusion, ie. the most important thing 🙂
TAGS: their customs , classics , Marxism , political economy , satire and humor , tudy , quote
====http://knyazev-v.livejournal.com/666698.html

Clearly mimicing Bukharin’s petensiousness.

Ken Tarbuck’s Appendix 2 declines to include or refrence it, but pretends Lenin was emphasizing that Bukharin had produced “a barrell of honey” rather than that he had ruined it with tar.

The Russian joke reminds me of the pretentious review of Maksakovsky by Stavros D. Mavroudeas in Science and Society. It pretended to praise the wonderful dialectics while in fact dissuading anybody from reading it by effectively dismissing it as some “eclectic” mixture of disproportionality and underconsumptionism. Did great damage.

Would still like to find an english translation of Lenin’s marginal actual marginal notes (and the rest of the “recensio”) or even online Russian versions to feed through google translate. (Don’t know enough Russian to even find them online via the date and citation to Leninskii Sbornik)

Also do not want to discuss this much further. But the gross output tables and the gross value added tables derive directly from the input-output tables because these input-output tables separate out intermediate and final sales. I am also not convinced that the methodology found in volume 2 relating to turnover is influenced by the degree of abstraction.

1. Yes. I have only now rapidly skimmed your 23 page paper “Applying the turnover formula to the System of National Accounts to determine both the amount of working capital and its annual rate of turnover. For some reason Chrome browser had downloaded it with a random junk file name and I only just looked as a result of you mentioning that you were in fact using the input output tables. It does fully answer my question as to what your formula means and I agree it is not meaningless and you are at least looking in the right place to connect available statistics to Marx’s Volume 2 treatment. Problem I see is mainly that just as wages have a totally different turnover rate for variable capital (eg fortnightly payroll processing) from any total average so does each other input both from each of the different sectors aggregated in the input output tables and also within those sectors. But that is a matter of further refinement rather than being completely off track like the stuff in debates about “transformation problem”.

The UN SNA documents are freely available (see wikipedia page) and have an extensive set of handbooks explaining the principles used in detail. Anwar Sheikh’s 2016 book is available at http://realecon.org/ Both it and Maksakovsky’s “The Capitalist Cycle” are are available for free download via Library Genesis. I believe you will find all 3 of great interest as none of them are listed in the 17 references of your September 2017 paper. There is also an extensive literature on working capital and inventory which is indeed viewed by central bankers as central to the aspects of the business cycle that they understand and can influence with monetary policy. These issues are also daily bread and butter for supply chain management. I strongly recommend the series of free Massive Open Online Courses (MOOCs) from MITx at edX.org.

I am very interested in turnover because it is indeed where symptoms show up. Capacity utilization of fixed capital is closely connected and far more important than working capital and inventories for understanding the whole dynamic but it is certainly necessary to understand both and their interconnections with finance.

I agree that the degree of abstraction in Marx’s volume 2 does not detract from its vast superiority to the understanding gained by people who unlike you do not bother reading it. Nevertheless, the reproduction schemes there deliberately and with good reason include only flows (including depreciation that is very hard to deal with statistically). The “stocks” (ie integrated net flows) of working capital and fixed capital have to be analysed at a subsequent stage. There is masses of stuff in Volume 3 on the movements of turnover and stocks and their financing over the cycle and especially during the crisis phase. Unfortunately it was never properly systematized. Hence the importance of Maksakovsky taking it further.

You will find Library Genesis very valuable for seriously studying the vast available literature (including direct access to most economics and finance journals via the option for “Scientific Articles” – as opposed to default “LibGen (Sci-Tech)” for books):

A final addition to the revolutionary cycle.
Its progressive phase, extension of the ownership of productive capital (the means of production, companies), phase of political reforms favorable to working classes. . Europe 1917-80s. The State (socialist social property) as the main economic agent goes from 10% of total GDP in the early twentieth century to 55% Western Europe, 70% Nordic Countries, 90/100 USSR. Nationalizations of private companies (by ALL governments, also conservative governments: De Gaulle, Adenauer, etc …
Its regressive, reactionary, backward, contractionary phase in the ownership of productive capital. It happens ALL OTHERWISE (privatizations of public companies-600 companies since the 1980s, Welfare State privatization, unemployment, part-time employment, cut-off salaries, et5c .. and they are policies implemented by ALL POLITICAL PARTIES, also by leftist parties (Syriza, Podemos -in their town hall in Spain, eg Madrid-, all the European Social Democracy: Blair, Felipe González, Miterrand, Hollande, etc.
The State of real socialism, the State of Welfare State, in the twentieth century, has not been a good socialist state with command and control of its workers. Stalin, and Lenin and Trosky, have appropriated for themselves and for their parties and bureaucracy of the business-means of production. Economic history advances only step by step (social progress), and with steps back (regressions), and it is possible that in the next revolutionary cycle ownership, control and control of the means of production if it reaches the hands of workers.
Sincerely

The main issue with Boffy’s example of a society that builds bridges to one that makes shoes etc is that if you don’t build a bridge you still have to find a way across the river. So don’t build the bridge and instead make shoes and maybe when they come to the river the shoes can be thrown over the river by some Hero of Socialist Labour!

You don’t see many high turnover rate societies without developed infrastructure!

Does anyone have any information to support the notion that the tendency for the rate of profit to fall is no longer operative because manufacturing has declined so dramatically as a portion of capital’s output? Does anyone have any real data to support the notion that fixed assets are “less important” to a)the capitalist cycle b)the secular trend of the rate of profit because so-called service industries a)contribute so much more to capital accumulation and b) such industries are “fixed asset light”?

Would love to see it because my preliminary research indicates otherwise.

Sartesian look at the gross output data not only value added. You will see a totally different picture because much of the value added by the service sector has been transferred from the goods producing sector. BEA interactive data, GDP-by-industry, Gross Output. 55% of all the sales (price of sales) is contributed by manufacturing+wholesale+retail = total business sales. Add in utility sales and the rest of goods producing and you arrive at two out of three sales. It is not by accident that manufacturing alone provides over 50% of the profit and revenue found in the S&P 500. Where are the service sector corporations? Not to be found. Britain is different because of the giant outsourcing firms like G4s, Compass etc. As for fixed assets, the bulk of these are to be found in the goods producing sector. Fixed assets remain primary. The two triggers affecting fixed asset investment is the movement in the absolute rate of profit and the seizing up of circulating capital, which creates overproduction itself, caused by movements in the relative rate of profit. Hope that helps

I agree. It was exaclty the gross output data from the US BEA tables that confirmed for me that the goods producing sector remains the dominant sector; fixed assets have not lost their “criticality,”

I was hoping, foolish as hope may be, that Boffy might provide some concrete data to back up his assertions.

Re fixed assets, if you subtract real estate and rental sectors portions from total fixed assets– then the percentage that has been accounted for by manufacturing, utilities, and mining in the US has actually increased from 34.7 % of the total in 1947 to 37% of the total in 2016.

The UK may be different in another sense that a large part of output is in relation to the NHS, which although there has been measures of privatisation, is still run by the government. But, even a private health service such as in the US is a large service provider, the majority of whose output value comes from current labour, rather than the processing of materials.

True the role of fixed capital raises productivity, which is a point I have made above, but this developments in technology, in relation to this fixed capital, and reductions in the value of this fixed capital via technological changes and rises in productivity, and other forms of moral depreciation of fixed capital leads to more labour being employed, and more profit being produced by it. In both the US and UK, there is all of the output value from other services such as education, social care and so on. Very little of this service provision relies on the processing of materials, or other use of manufactured output from the other sectors of the economy.

The same is true of the growing multi-billion pound service industries such as in computer gaming, video and other entertainment production.

“In both the US and UK, there is all of the output value from other services such as education, social care and so on. Very little of this service provision relies on the processing of materials, or other use of manufactured output from the other sectors of the economy”

Not exactly so for US on both counts a) percentage of gross output b) use of manufactured output (as indicated by growth in fixed capital used in these sectors]:

I think it’s a big mistake to underestimate the impact of fixed assets and manufactured goods in the delivery of healthcare services. Ever check out the fixed capital embedded in a hospital, with MRI machines, PETA scanners, patient monitoring devices?

The argument made here is that as technology advances it doesn’t displace labour but provides more opportunities to employ labour productively, because I presume it raises society to a greater level of productivity, just as once agriculture reaches a certain level of productivity we can speak of abstract labour etc.

If this is the case we are no longer talking about what Marx talked about and have entered a different epoch. If we assume this point is correct that we now live in a service economy epoch (I don’t) can we even talk of surplus value etc? Does the new epoch require a new theory and if not why the hell not!!

I am trying to find my copy of Ken Tarbuck’s article in the Permanent Revolution magazine from the 1970’s. When I find it, I will write a blog post on it, and provide a link. This is probably the last comment on this thread, because I am too busy to write further at the moment. But, I just wanted to give another example, of the way that technological development, even within a service industry leads to the kind of phenomena I have described. Take telecommunications. You can consider the figures in millions if you like.

Suppose a telephone system starts with £1,000 of fixed capital, in the form of exchanges, and telephone wires. The fixed capital suffers £100 of wear and tear each year. It employs 10 workers, as operators in the exchanges, and a small number of engineers. The system provides for 100 connected telephones. The 10 workers are paid wages of £100, and there is a 100% rate of surplus value. The annual rate of profit is £1,000 (fixed capital), + £100 wages, gives advanced capital of £1,100 (assuming variable-capital turns over once) the capital, and profit is £100, thereby 100/1100 = 9.09%. We’ll assume that this equals the average annual rate of profit.

The cost of production is £100 (wear and tear) + £100 wages, and £100 profit, giving a price of production of £300, or £3 per connected phone, and a rate of profit/profit margin of 50%.

Now assume that technological development means that new fixed capital is capable of providing not for 100 connected phones, but 1,000 phones. We can even assume that this new technology is twice as expensive absolutely as the previous fixed capital. In other words, it now costs £2,000, and loses £200 per year in wear and tear. But, as Marx points out the nature of such development is that even as the absolute price of such fixed capital rises, its relative price declines, because whereas previously the £1,000 of fixed capital represented £10 per connected phone, this new technology constitutes only £2 per connected phone.

Marx and Engels point out that such fixed capital is only introduced if its cost is less than the paid labour it replaces. If we consider this situation, it clearly fits the bill. On the basis of the previous technology, to be able to service 1,000 phones, would have required £10,000 of fixed capital, and 100 workers, paid wages of £1,000. Assume that this new technology is able to replace all the operators in the exchanges, by automation, but now requires 30 engineers. I will ignore any variations in wages between engineers and operators. In other words, for an additional £100 per year of fixed capital wear and tear, this new fixed capital replaces the additional 70 workers that would have been required on the basis of the old technology, equal to £700 of wages (variable-capital).

Productivity has been raised considerably, both for the fixed capital and for the employed labour. In such conditions in manufacturing, this would have created the conditions Marx sets out as the basis for the operation of the Law of Falling Profits, because this rise in productivity, reducing the proportion of both fixed capital and labour in output, would have caused a corresponding huge increase in the proportion of raw material in final output. However, what is the effect here.

We now have £2,000 of fixed (constant) capital and £300 of variable capital advanced = £2,300. The 30 workers (assuming no change in the rate of surplus value, as a corresponding rise in social productivity brought about a reduction in the value of labour-power) now produce £300 of surplus value. The annual rate of profit is then 300/2300 = 13.04%. In other words, the annual rate of profit has risen by more or less 50% from its previous level of 9.09%. Yet, as seen above the introduction of the new fixed capital brought about a massive relative reduction in the amount of labour employed, for a comparatively small additional expenditure on the new fixed capital. In fact, as I have set out elsewhere, such developments in technology, undoubtedly have wider impacts, which would result in a reduction in the value of labour-power, rise in the rate of surplus value, and annual rate of profit, over and above what is indicated here.

If we look at the further consequences, the cost of production is now £200 (wear and tear) plus £300 wages = £500. Assuming this industry still represents the average, and so its annual rate of profit represents the average annual rate of profit, its £300 of profit then gives a price of production of £800, or now just £0.80 per phone. The rate of profit/profit margin is now 300/500 = 60%, compared to the original 50%.

But, in fact, using Marx and Engels argument that such fixed capital is introduced so long as its cost is less than the paid labour it replaces, it could have been profitable to introduce this new technology, even if it simply replaced 10 additional workers. In other words, 10 workers were initially employed, and to provide for 1,000 phones instead of 100 would have required an additional 90 workers. The cost of the fixed capital is £100 (wear and tear), equal to the wages of 10 workers, so, as long as it resulted in no more than 80 workers being employed in total, it would be profitable. I have only assumed 30 workers are employed. Suppose, instead 70 workers are employed. That still implies a saving of £100 per year in wages, as a result of the introduction in new technology, over and above what would have been the case on the basis of the old technology.

In that case, we would have £2,000 (fixed capital) + £700 wages = £2700 advanced capital. Surplus value, £700. Annual rate of profit 700/2700 = 25.93%, which is nearly three times the original 9% annual rate of profit. The cost of production is £200 (wear and tear) + £700 wages = £900, plus the average profit of £700, gives a price of production of £1,600, or £1.60 per phone. The price per phone is still here, nearly half what it originally was. The rate of profit/profit margin is 700/900 = 77.78%. That is nearly 50% more than it was originally.

Again, I have not included here, any of the additional effects that would result in a rise in the rate of surplus value, and rate of profit as a result of these rises in technologically driven productivity reducing the value of labour-power, but which would inevitably result from such technological improvements.

This kind of development can be seen in a whole range of areas of production. Indeed, Marx makes the same kinds of points relating to mineral production where, increases in productivity do not result in an increased quantity of raw material being processed (the output is itself the raw material used by other industries), but only of an increase in the use of auxiliary materials, for oiling machines, powering steam engines etc., whilst the actual proportion of both fixed capital cost, and of labour declines in the value of total output, as productivity rises, and these costs are divided over a much larger mass of output. I previously referred to the fact that thousands of PC’s can now be employed for what once was the cost of a single mainframe computer, and each of these thousands of PC’s employs an operator producing surplus value, as opposed to the handful of workers employed by the single mainframe computer. This is the same kind of process that Marx discusses in Theories of Surplus Value, Chapter 12 et al.

But, it can similarly be seen in things such as healthcare, where, as I have said the massive reduction in the cost of sequencing the genome, as a result of huge technological developments and improvements in productivity, mean that thousands of people can now be employed in such production, each producing surplus value. A similar argument can be made in regard for things such as the development of boring equipment used on the Channel Tunnel, which meant that, although it theoretically replaced tens of thousands of workers who would have been required with picks and shovels to dig it, actually resulted in thousands of workers being employed, because otherwise the construction would not have gone ahead. What would have been unprofitable, became profitable on the basis of the introduction of this labour-saving technology.
The same can be said about all of those new technologies used in hospitals, schools, and so on which now make possible the provision of services that previously would not have been possible.

I agree this debate is exhausted. “But, in fact, using Marx and Engels argument that such fixed capital is introduced so long as its cost is less than the paid labour it replaces,” Only partially true. What Marx said was that it had to reduce the amount of paid labour such that it yielded sufficient surplus labour so as to increase the rate of profit.

Exhausted, indeed. Tis a pity though; I was hoping somebody would concretely show us how capitalism has managed to overcome the tendency of the rate of profit to decline while not overcoming anything else. Guess not. One more example of a philosophy of the abstract capitulating to the world of the concrete.

“Marx and Engels point out that such fixed capital is only introduced if its cost is less than the paid labour it replaces”

Yes, consequently as they also pointed out:

1. Automated methods that are already known will not be introduced until wages have risen high enough and/or the average rate of profit has fallen low enough.

2. These EXISTING known methods will be introduced as “innovations” when that does happen, as it inevitably will with accumulation.

Of course it is also true that sometimes an actual recent discovery can be implemented immediately because it ALREADY costs less than the paid labour it replaces.

It is equally true that sometimes an actual recent discovery remains “commercially unviable” because it doesn’t.

Also of course many new “discoveries” can NEVER become viable because there are other ways to do the same thing that will remain cheaper regardless of changes in wages and profits.

Focus on “new” inventions misses the central points about:

1) how wages depend on the pool of unemployment which has to be re-established by implementing “innovations” that use less paid labor than they replace when wages get too high so that wages don’t just keep rising and choking off profits, which they would do if there was no pool of unemployed to recruit from.

2) why capitalism is a fetter on the development of the productive forces and workers struggle helps force capitalists to develop them.

3) the fact that communism will unleash the more rapid development of productive forces to eliminate work far faster than capitalism does by doing far more development of “new” inventions.

In fact this focus goes together with a “green” attitude (polar opposite of red) actively hostile to such “innovations” and in favor of lower living standards, more work and less globalization and large scale industry. (Laughably presented as Marxists favouring “zero growth” from Monthly Review, David Harvey et al).

How can one speak positively about the leading capitalist states’ service economy from one side of one’s mouth and yet point out (true, only in passing) that the developing world’s rapidly expanding industrial working class is “the largest class on the planet”? –It would seem that the positivity of the service economy is intimately related to the productivity of the world’s largest class. But maybe you’re embarrassed by intimacy.

Whatever the cause, you drop the matter to develop your thesis of how technical innovation and the service economy in the hermetically advanced capitalist countries have not only defeated the tendency of the rate of profit to fall (neoliberal fantasy #1) but have ushered in a new golden age of capitalism (fantasy #2): more and better jobs, expanding production, etc. A description of the real world of the service economy: decreasing services (schools, libraries, healthcare, etc.) for even the poorly paid service workers; fewer and fewer decent jobs for the employed; debt peonage, etc. is missing from the analysis… as is “the largest class on the planet,” which literally doesn’t count/calculate in your positive view of neoliberalism’s violent race to the bottom.

That said, I continue to read (most of) your comments, which are always clearly written and sourced, and to learn from them.

Clearly mandm’s reference to “the largest class on the planet” means that comment was to Boffy.

But I DID say something along those lines in two comments in previous thread:

“… what I did read was unambiguously siding with the Trumpists in objecting to the enormous gap in living standards being reduced between the large majority of workers in developing countries and the small minority in the developed countries”.

First was at link above and second just below the typo correction immediately following it.

My confused vanity in looking that up did get me thinking about multiple issues being conflated in discussion between various conflicting and overlapping viewpoints.

1. Collapse of left politics is closely related to the fact that capitalism in advanced countries did do spectacularly better than expected with a significant rise in working class living standards during most of the post second world war period.

2. Recent years have seen stagnation and actual decline, but still no serious left.

3. Recent years have also seen major acceleration of globalization with a major increase in industrialization and rise in living standards of most of the rest in the world. Reactionaries resent that.

4. Pseudoleft has objected to globalism, run campaigns against NAFTA and is now outflanked by Trump on those issues as he is able to more openly redirect resentment at stagnation and decline into resentment of foreigners and immigrants.

5. Concepts about “neoliberalism” and “service economy” play some sort of ideological role that I don’t quite understand yet. But somehow make people feel more comfortable about not having a perspective than can unite with all workers oppressed by capital rather than with liberals proclaiming their anti-racism etc as grounds for unity.

6. I don’t quite get how “service economy” is supposed to explain either the post war boom or its decline or how it is supposed to relate to TRPF. My suspicion is that it is ONLY another ideological catchphrase like “neoliberalism”.

7. About half the global population is now urban. Massive infrastructure investment in fixed capital is required to provide such basic “services” as water supply, toilets, roads, housing and electricity to the WHOLE human population. Obviously that will improve productivity, reduce costs, and reduce the rate of profit on the total capital invested just as the massive investment in the built environment and corresponding shift from manual labour to more skilled “service” jobs has had those effects in “developing” the developed world. Its called “development” and of course reactionaries fear it.

8. Greenies and the pseudoleft will continue objecting to globalization and especially to electrification, on essentially Malthusian grounds and will become increasingly irrelevant as their desires for reduced consumption are fully met by stagnation and then mass unemployment in another Great Depression.

9. A left economic program for recovery in developed countries would surely support massive investment in infrastructure development in the third world and massive R&D to further accelerate the decline of “work” and “jobs, jobs, jobs” which cannot be the long term future of humanity. Trumpists and pseudoleft will join in objecting to the “export of jobs”.

I had not intended to comment further, as I do not have time, and this thread seems to have run its course. However, it takes little time to deal with the obvious misconception in your comment. You say,

“How can one speak positively about the leading capitalist states’ service economy from one side of one’s mouth and yet point out (true, only in passing) that the developing world’s rapidly expanding industrial working class is “the largest class on the planet”?”

What I said was that the working-class is now the largest class on the planet. That class includes all those workers who work in the service industries. According to the latest data, for China, for example, service industry accounts for 52% of GDP, and is also the largest single biggest sector for employment, accounting for 42% of employment, as against 29% for manufacturing and 28% for agriculture.

You also say,

“Whatever the cause, you drop the matter to develop your thesis of how technical innovation and the service economy in the hermetically advanced capitalist countries have not only defeated the tendency of the rate of profit to fall (neoliberal fantasy #1) but have ushered in a new golden age of capitalism (fantasy #2):”

You don’t give any evidence or theoretical justification for your claim in relation to #1, and nor is #2, in any way true, and does not follow from anything I have said. The only possible way in which you could derive your claim in respect of #2, from your statement in relation to the law of the tendency for the rate of profit to fall, is if it were true that I believed that capitalist crises resulted from the application of that Law.

But, I don’t and I have gone to great lengths to explain why I don’t, and why as Marx explains in his response to the catastrophist theories of Smith, Ricardo and Malthus, it is, in fact, in order to deal with the squeeze on profits that results from a fall in the rate of surplus value, as wages rise, and which facilitate crises of overproduction, that capital resorts to measures of intensive accumulation, so as to introduce labour-saving technologies, and create a relative surplus population, which results in wages falling and the rate of surplus value rising, that is the basis for the operation of the Law of the Tendency for the Rate of Profit to fall.

Your comment,

“A description of the real world of the service economy: decreasing services (schools, libraries, healthcare, etc.) for even the poorly paid service workers;”

is a very restricted definition of service industry. It includes all of those massively expanding service industries in entertainment, leisure, computer gaming and so on. But, even in terms of your restricted definition, it is only true in those economies where measures of austerity have been applied after 2010. In huge areas of the globe even that sector of service provision has increased considerably. And, even in Britain, let’s remember that after 2000, the Labour government TRIPLED expenditure on the NHS. Taking the distorted conditions in only a selected group of countries after 2010, is not a very good basis for assessing a longer term trend.

“But, I don’t and I have gone to great lengths to explain why I don’t, [believe that capitalist crises resulted from the Law of TRPF] and why as Marx explains in his response to the catastrophist theories of Smith, Ricardo and Malthus, it is, in fact, in order to deal with the squeeze on profits that results from a fall in the rate of surplus value, as wages rise, and which facilitate crises of overproduction, that capital resorts to measures of intensive accumulation, so as to introduce labour-saving technologies, and create a relative surplus population, which results in wages falling and the rate of surplus value rising, that is the basis for the operation of the Law of the Tendency for the Rate of Profit to fall.”

Ok, so I could add Boffy to my growing list of people who agree with Marx and Maksakovsky and disagree with what I thought was the consensus among “marxians”:

I take Boffy as agreeing that (intensive) accumulation and hence TRPF is driven by changes in prices (including especially higher wages) that make previously “uneconomic” capital intensive technologies viable as “innovations” rather than relying on discovery of new inventions that for some reason happen to be capital intensive to explain TRPF.

Unfortunately this gets obscured by “great lengths to explain” which seem to include directly opposite stuff as well. But that is a matter of style and I am in full agreement with what I understood to be the substance in that quote.

Also Boffy and I agree that crises do not result from Law of TRPF, whereas I still take it that Michael Roberts and most followers of this blog including sartesian still hold some version of the opposite view.

I would also describe that LTPRF explanation of crises as overlapping with theories of “collapse” as a one directional tendency down has no element of “recovery”. It simply does not suggest that a crisis is a phase in a cycle and creates conditions for the next phases of depression, recovery, prosperity and boom. The concept of regular recurring cycles with each phase creating conditions for the next phase is clearly central to Marx’s view and I do not understand how LTRPF as a theory of crisis could be reconciled with it. “Countervailing tendencies” do not generate recurrent “cycles” but merely modify a tendency.

Planets do orbit around the Sun in elliptical cycles, even though they are named as “wanderers” and do sometimes appear to wander backwards in “retrogression”. The epicycles that were used to “explain” this as a countervailing tendency to the law of circular movement of the Sun around the earth did successfully account for the observational phenomena for a long time but were far too complicated and did not penetrate to the essence. I don’t even see the LTRPF stuff fitting the observational data as successfully as Ptolemy and Tycho Brae did.

Not sure why Boffy refers to “catastrophist theories of Smith, Ricardo and Malthus”, but again probably doesn’t matter if substance is agreeing that Marx describes inevitable cycles and crises leading to proletarian revolution rather than one directional movement to collapse.

Quote from Boffy above is also close to agreeing with Maksakovsky and I that crises (via competition) drive the increasing organic composition of capital and hence Law of TRPF rather than other way around. However quote does not quite get there. Instead claims “profit squeeze” explanation for TRPF:

“…in order to deal with the squeeze on profits that results from a fall in the rate of surplus value, as wages rise, and which facilitate crises of overproduction, that capital resorts to measures of intensive accumulation, so as to introduce labour-saving technologies, and create a relative surplus population, which results in wages falling and the rate of surplus value rising, that is the basis for the operation of the Law of the Tendency for the Rate of Profit to fall.”

Now certainly Marx described elements of that, but explicitly as an exceptional crisis of “absolute” overaccumulation. That is what WOULD happen if other things did not. There are many sorts of crises and that is one of them. But the “regular” business cycle is the most important. The fact that it used to be punctuated by regular crises was explained by Marx and Maksakovsky.

The absence or “Great Moderation” of similar crises for the past few decades and the looming appearance of another big one is what needs to be theorised now.

That theory cannot possibly be based on a “profit squeeze” and crises as a mechanism to make wages fall. As Marx mentioned, the laws of wages are a lot more complicated. The normal functioning requires a fluctuating pool of unemployment which regulates wages by shifting to more productive capital intensive techniques as real wages rise (this roughly corresponds to “marginal productivity of labor” but with a non-apologetic theory of surplus value rather than “marginal productivity of capital”).

It should be notorious that the mass unemployment of the last Great Depression and general reduction of working class living standards (to include unemployed dependents) was NOT generally accompanied by a corresponding fall in labor share or even in real wages. Profits fell faster, including massive bankruptcies and concentration of capital in a much smaller ruling class. There were cuts to nominal wages but consumer prices fell more rapidly. The introduction of more productive capital intensive plant enabled surviving capitals to pay the higher wages achieved in the preceding cycle while also driving out their competitors, restoring the usual size of the pool of unemployed and also returning to the profit share “to which they would like to remain accustomed”.

It also should be notorious that since that Great Depression central banks and governments have taken full responsibility for regulating the pool of unemployment by fiscal and monetary measures with the conscious aim of avoiding another Great Depression and substituting a smoother upward adjustment in wages and stability of profit share. That was surprisingly successful for many decades.

It should also be notorious that when the “profit squeeze” theory of crises became popular among “marxians” in the late 1970s the anticipated crisis did not in fact occur. The response was stagflation and eventual recovery. (I am guessing that the popularity of LRTPF based crisis theory now is largely due to failure of that and other competing theories like underconsumption rather than any intrinsic merit).

It should NOW be notorious that there has more recently been a significant INCREASE in profit share and not only a decline in wage share but also in real wages in the most advanced capitalist countries (with actual mass unemployment in Greece and Spain).

Some analysts are insisting that the Global Financial Crisis (which was NOT resolved by a cyclical crash) was a mere financial aberration and we are returning to steady growth with moderate cycles. Others are a lot more worried than they have ever been about the possibility of a bigger Great Depression following any brief boom that may be induced. Others expect long term stagnation.

All three can produce econometric data supporting their views, though not fitting their theories as well as Ptolemy and Tycho Brae did.

There is some overlap between various views here and between views here and in mainstream bourgeois economics. It is way past time for some serious theoretical work. Maksakovsky as a good place to start for understanding Marx on the business cycle.

It staggers me that Boffy can just throw out a stat on China healthcare spending and thinks this on its own proves any kind of point, even in the context of his vision of a service sector world it really doesn’t say much, or not enough to draw any firm conclusions.

All it does is get us scurrying to see some facts on Chinese health spend, more facts telling us less and less.

But at the heart of Boffys claim as far as I can see is that fundamentally we are in a different epoch of capitalism, one where Marx is applicable up to a point, but not anywhere it really matters.

Capitalism can go on forever, there is no scientific basis for socialism whatsoever. Socialism is reduced by Boffy to a subjective preference.

“Quote from Boffy above is also close to agreeing with Maksakovsky and I that crises (via competition) drive the increasing organic composition of capital and hence Law of TRPF rather than other way around. However quote does not quite get there. Instead claims “profit squeeze” explanation for TRPF:”

No absolutely I do not. The Profits Squeeze is precisely the catastrophist explanation that Smith, Ricardo and Malthus put forward, and which today many “Marxists” confuse with the Marxian definition of the LTPRF in their desperation to find a final collapse theory of capitalism, which they hope will rescue them from their failure to present workers with an attractive vision of socialism, and failure to derive any practical programme and strategy to take workers from their existing condition to it.

The profits squeeze is not the explanation for the LTPRF, but is an explanation of recurring crises, because the profits squeeze is itself a symptom of the cyclical development of the productive forces in different stages of the long wave cycle. It is not the only explanation for crises, as I have set out in my book Marx and Engels Theories of Crisis.

Marx explains, particularly in TOSV Chapter 17, that these periodic squeezes on profits related to the fact that labour supplies get relatively used up, wages rise etc. and the rate of surplus value falls, are precisely that periodic, and DO NOT lead to a permanent crisis or catastrophic collapse, as Ricardo and the vulgar Marxists believe, but are merely temporary, and spur on the development of labour-saving technologies that raise productivity and enhance the accumulation of capital and production of surplus value.

My view is absolutely NOT that the explanation for the LTPRF is a profits squeeze. The LTPRF arises in material processing economies as a means of resolving the crises that arise on the back of such profits squeezes.

““Quote from Boffy above is also close to agreeing with Maksakovsky and I that crises (via competition) drive the increasing organic composition of capital and hence Law of TRPF rather than other way around. However quote does not quite get there. Instead claims “profit squeeze” explanation for TRPF:”

I don’t know why I typed “TRPF” as the last word. I meant to say “crisis”. I fully agree that Boffy does not claim “profit squeeze” is an explanation for TRPF and that he does claim “profit squeeze” is an explanation of crisis.

I am also glad that Boffy is pleased we agree on the main issue – crises drive organic composition and TRPF rather than other way round.

I will return to the substantive issues on which we actually disagree in a separate comment.

But just as easily cleared up is Boffy’s perplexity as to why I should find the heading TOSV chapter 12 odd and why I should mention chapter 17 when he doesn’t.

The reason’s are as I stated them. Chapter 12 is about Ricardo’s theory of rent. There is plainly NO discussion of Ricardo’s theory of rent in the post. The URL for the post is:

That URL refers to chapter 17 which happens to be exactly the right place to look for Marx’s explanation of crisis – written before volumes 2 and 3 and widely ignored by “marxians” distracted by confusion over the LTRPF.

So I still think the title is odd and am hopeful that Boffy could simply correct it as it is not the sort of error that even a person grimly detrmined to just keep repeating themselves seems likely to feel unable to just accept a correction about.

I do not have time to reply to the substantive points. However, I can easily clear one aspect of your confusion.

The 17, in the URL you refer to is a reference to the date of the post, i.e. 17th March, not any reference to a Chapter of TOSV. The post itself is clearly headed as I said “Chapter 12 – Part 19”. If your confusion hree is an indication of your lack of attention to detail in reading, then I have to say I am not at all surprised that you are so egregiously confused when it comes to the substantive issues being discussed.

In relation to the contents of the post. As I said previously, it was not written as any kind of contribution to the current discussion here, but was a scheduled post as part of my discussion of Theories of Surplus Value. The entire Chapter is described by Marx as in relation to Ricardo’s Theory of Rent, but this particular section – Section c – concerns “Observations on the Influence of the Change in the Value of the Means of Subsistence and of Raw Material (Hence also the Value of Machinery) on the Organic Composition of Capital”, and follows on from Section b discussing “The Connection Between Ricardo’s Theory of Rent and the Conception of Falling Productivity in Agriculture. Changes in the Rate of Absolute Rent and Their Relation to the Changes in the Rate of Profit”.

In other words, it is particularly relevant to the current discussion, because in it, Marx discusses the differences between the technical and so organic composition of capital, and the purely value composition, in relation to the mass and rate of surplus value produced as a consequence of changes in the value/price of constant capital as opposed to changes in wages. So, for example, a rise in the price of constant capital, means that less of it can be employed, and if the technical composition of capital remains the same, the fact that less material is processed, or fewer machines can be bought to process the material, means that less labour can be employed also, and that means that the mass of surplus value produced must fall, whilst the rate of profit must also fall.

The opposite is true where the value/price of constant capital falls. If wages rise, but the value/price of constant capital remains the same, whilst the technical composition remains constant. Fewer workers can be employed, and less constant capital can be bought for them to process. The technical composition remains the same, but the value composition rises as a result of the higher wages. This appears as a higher organic composition of capital, which the LTPRF would suggest should lead to a higher rate of profit, but as Marx points out where it is a consequence of a change in the value composition rather than the technical composition that is not the case.

Here, because higher wages means less variable and constant capital is employed. The higher wages mean a lower rate of surplus value, and this results in a squeeze on profits, and a fall in the mass and rate of profit.

All of these different consequences of changes in the value/price of the various components of constant and variable capital and their interrelationship are discussed by Marx in Chapter 12, and the chapters surrounding it, leading up to Marx’s dismantling of the catastrophist theories of the falling rate of profit in Chapter 17. I have covered all of these analysis in my book, and is set out here in the already published posts up to Chapter 12, and will be set out in following posts for the subsequent chapters.

If I have time, I will reply to the egregious confusion over the difference between the rate of profit and annual rate of profit, contained in your further separate comment. In the meantime, Marx’s definition of the Annual Rate of Profit is set out here, and also provides links to the definition of the rate of profit, and associated rate of surplus value, and annual rate of surplus value.

On the basis of reading the various comments you have written, I am assuming that you are not just another of the many sock puppets used by Sartesian, in which case I would advise you not to in any way rely on anything he says, because he is just a troll, who I several years ago, along with others, realised does not know his arse from his elbow when it comes to even the most basic Marxist concepts, but who simply cuts and pastes huge slabs of texts from Marx, that are usually totally irrelevant to the issue being discussed, but in which he hopes by casting such a large net, it may contain something that someone, might thing in some way supports its illiterate ravings, whose intemperate tone are a clear indication of their purpose to only provoke flame wars rather than achieve any advance on the sum of human knowledge.

PS. I noted that I said “higher organic composition of capital” in a number of places,here, where I should have said lower. The higher wages mean a lower value composition of capital, i.e. c falls relative to v, which appears as a lower organic composition, but results in a lower rate of profit, rather than a higher ate of profit, as would be implied by the LTPRF.

1. The reason I thought Boffy’s post titled TOSV Ch 12 was incorrectly titled was clearly a mistake. It had not occurred to me that a post which makes no reference to Ricardo’s theory of rent, and in which none of the many extensive quotations were from Ch 12, which is about Ricardo’s theory of rent and which was not or in any way related to Ch 12 or to the theory of rent, was in fact titled exactly as Boffy intended it to be titled. I stand corrected. I do not understand, nor do I intend to speculate or inquire further, as to what point Boffy is making based on section (c) of Ch 12 or why “it is particularly relevant to the current discussion”. Does seem a good way to discourage any interest in studying Marx, but that may not be the intention.

2. As well as the 17 in the URL which I now accept was in fact just a day of the month, I thought it might have been intended to be a post that got distracted while intending to discuss TOSV Ch 17 for another reason. Ch 17 happens to be exactly the most relevant part of Marx’s works for understanding Marx’s views on crisis. Again, I stand corrected and will not again make the mistake of thinking that Boffy might possibly be merely getting distracted while attempting to discuss what Marx actually did write about crises.

3. I have now looked at the link for “Annual Rate of Profit” and even followed the link from there to:

4. I could not read it all, but what I did get totally confirmed that Boffy is convinced that:

” The rate of profit that Marx is referring to here is s/c+v, which is the same as the profit margin, which can also be written as p/k, where p is the profit, and k is the cost of production.”

5. It also confirms Boffy will keep repeating this and finding confirmation of it anywhere he looks, including even in Marx’s discussion of Ricardo’s theory of rent, and that I am not going to be able to influence that by any continued attempt to explain why this or anything else Boffy believes is wrong.

6. I have successfull restrained myself from adding the sort of concluding paragraph I would enjoy writing but am unable to restrain myself from boasting about that otherwise successful exercise of retraint.

“and in which none of the many extensive quotations were from Ch 12, which is about Ricardo’s theory of rent and which was not or in any way related to Ch 12 or to the theory of rent, was in fact titled exactly as Boffy intended it to be titled.”

The quotes contained in that blog post from Marx in Capital III, most certainly DO relate to the contents of TOSV Chapter 12, as I set out in my previous reply, because the sections that are being dealt with in these posts are NOT just about Ricardo’s theory of rent, but about the consequences of changes in the technical, organic and value compositions of capital, and their effect on the rate of surplus value and rate of profit!

That is precisely why it is relevant to the current discussion, which is centred around the question of changes in the technical composition of capital, and corresponding affect on the organic composition of capital rising from technological change, the change in the value of fixed capital, and the changing composition of constant capital between fixed and circulating.

I have to say that your last 2 points do nothing to dissuade anyone from the belief that you are just another sock puppet.

“The quotes contained in that blog post from Marx in Capital III, most certainly DO relate to the contents of TOSV Chapter 12, as I set out in my previous reply, because the sections that are being dealt with in these posts are NOT just about Ricardo’s theory of rent, but about the consequences of changes in the technical, organic and value compositions of capital, and their effect on the rate of surplus value and rate of profit!”

You will see that is emphasised in today’s blog post on that chapter, where Marx’s tables in the chapter are presented, drawing out these effects of changes in values/prices of the commodities that comprise the constant and variable capital, and their different effects on the mass of both employed, and their impacts on the technical and organic composition of capital, as against the purely value composition of capital, and the corresponding effects on the rate of surplus value, mass of surplus value, and rate of profit.

I am working when I have time on a more comprehensive response to your separate comment on the rate of profit, annual rate of profit, and average rate of profit. It has to take second place to other more pressing work I have to do, but I will post it once I have time.

In the meantime, in my “Glossary of Marxist Terms” on my blog, all of these concepts are dealt with in detail, and explain why the understanding you have of them is wrong. In the meantime, before being able to submit that more comprehensive response, I would make the following short points.

1. If your contention were correct, it would mean Marx and Engels saying two contradictory things at the same time, because the general annual rate of profit is, they make clear, and Marx uses precisely that definition in the later chapters of Capital after having dealt with commercial profit, is based upon the annual rate of profit, NOT the rate of profit/profit margin. But, both in numerous places demonstrate that as technological change occurs, this causes the rate of turnover of capital to rise, and this means that the annual rate of surplus value, and annual rate of profit rises, sometimes by large amounts. But, both, and Marx in particular, in TOSV, but also in Capital III, demonstrates that a higher rate of turnover of capital results in a LOWER rate of profit/profit margin.

If they were talking about the general annual rate of profit in its developed form, as set out in the later chapters of Capital III, as opposed to simply using the term “rate of profit” in its generic form, to mean on the assumption that the capital is turned over just once, so that the advanced capital and laid out capital are the same, then its clear that they would be simultaneously saying that the rate of profit rises, and that it falls as a result of the LTPRF.

2. Following on from the above, its notable that in Capital III, Chapter 14, of all the “Countervailing Forces” that Marx cites, if your contention were correct he makes a glaring omission, because nowhere in those countervailing forces does he mention the necessary ris in the rate of turnover, which technological change, and the rise in social productivity brings with it. Why does he not cite this rise in the rate of turnover? Quite simply because the rise in the rate of turnover only raises the annual rate of profit, whereas a higher than average rate of turnover causes the profit margin/rate of profit to be lower, as he set out in Chapter 13. Equally, in Capital III, and in TOSV, in particular, Marx sets out the way a higher rate of turnover of capital causes the annual rate of surplus value, and annual rate of profit to rise.

Engels in Capital III, Chapter 4 says,

“The chief means of reducing the time of production is higher labour productivity, which is commonly called industrial progress. If this does not involve a simultaneous considerable increase in the outlay of total capital resulting from the installation of expensive machinery, etc., and thus a reduction of the rate of profit, which is calculated on the total capital, this rate must rise. And this is decidedly true in the case of many of the latest improvements in metallurgy and in the chemical industry. The recently discovered methods of producing iron and steel, such as the processes of Bessemer, Siemens, Gilchrist-Thomas, etc., cut to a minimum at relatively small costs the formerly arduous processes. The making of alizarin, a red dye-stuff extracted from coal-tar, requires but a few weeks, and this by means of already existing coal-tar dye-producing installations, to yield the same results which formerly required years. It took a year for the madder to mature, and it was customary to let the roots grow a few years more before they were processed.

The chief means of reducing the time of circulation is improved communications. The last fifty years have brought about a revolution in this field, comparable only with the industrial revolution of the latter half of the 18th century. On land the macadamised road has been displaced by the railway, on sea the slow and irregular sailing vessel has been pushed into the background by the rapid and dependable steamboat line, and the entire globe is being girdled by telegraph wires. The Suez Canal has fully opened East Asia and Australia to steamer traffic. The time of circulation of a shipment of commodities to East Asia, at least twelve months in 1847 (cf. Buch II, S. 235 [English edition: Karl Marx, Capital, Vol. II, pp. 251-52. — Ed.]), has now been reduced to almost as many weeks. The two large centres of the crises of 1825-57, America and India, have been brought from 70 to 90 per cent nearer to the European industrial countries by this revolution in transport, and have thereby lost a good deal of their explosive nature. The period of turnover of the total world commerce has been reduced to the same extent, and the efficacy of the capital involved in it has been more than doubled or trebled. It goes without saying that this has not been without effect on the rate of profit.”

Marx in TOSV sets out at length that alongside the organic composition of capital the other determinant of prices of production is the rate of turnover of capital, with those capitals that have a higher rate of turnover than average enjoying a higher than average rate of annual profit, which causes capital to migrate to those spheres, which pushes the price of their commodities down below their exchange value, so that in the same way as capitals with lower than average organic composition, their price of production is lower than their exchange value.

Given Marx and Engels attention to the important role of the rate of turnover of capital, it would seem, therefore, incomprehensible that Marx in setting out the “countervailing forces” to the law of falling profits would not include a long section of that Chapter setting out the way technological improvement, by raising social productivity, necessarily shortens production times and circulation times, and thereby raises the rate of turnover of capital, and thereby causes the annual rate of profit to rise substantially.

He doesn’t because in discussing the law he is discussing not the annual rate of profit (other than where this is the same as the rate of profit, because only one turnover per year is assumed) but only the rate of profit/profit margin, made clear in his own examples and those added by Engels, where they even talk about the profit margin per unit of output, and cite the rate of profit as p/k, as opposed to their definition of the annual rate of profit as s x n/C.

The rate of profit/profit margin is calculated on the total laid out capital for the year, including the wear and tear of fixed capital, but not including the total value of fixed capital, as Marx makes clear in Chapter 13. The annual rate of profit is calculated on the total advanced capital for one turnover period, and NOT including the wear and tear of fixed capital as you confusedly seem to believe. For one thing including the wear and tear as well as the full value of the fixed capital would be double counting.

The full value of the fixed capital, must be included as Marx says, in calculating the annual rate of profit, because although it is not consumed, and does not form part of the cost of production it has to be present, the capitalist has to be standing out of that amount of capital. Similarly, the more this fixed capital causes productivity to rise, and the rate of turnover to rise, the shorter the turnover period, and so the less circulating capital must be advanced to produce a given quantity of output, and its precisely for that reason that it causes the annual rate of profit to rise.

Its incomprehensible that Marx would not have set all this out as a countervailing force to the Law if what he was talking about was this annual rate of profit, rather than the rate of profit/profit margin. He doesn’t because he wasn’t. In discussing the law of falling profits he is talking about the rate of profit/profit margin, as he says in TOSV Chapter 16.

“{Incidentally, when speaking of the law of the falling rate of profit in the course of the development of capitalist production, we mean by profit, the total sum of surplus-value which is seized in the first place by the industrial capitalist, [irrespective of] how he may have to share this later with the money-lending capitalist (in the form of interest) and the landlord (in the form of rent). Thus here the rate of profit is equal to surplus-value divided by the capital outlay.”

That’s all I have time for today, because I must exercise restraint in dealing with your confusion, so as to not detract from my other work.

One of Boffy’s main contentions is that we have been experiencing an Expansionary Long Wave since 1999, to all his fans I ask, what proof is there of this? China aside how can can we look at the West of the last two decades and see anything comparable to say the post-WW2 boom? He has to believe this because he has a mechanical view of Long Waves.

Thanks Boffy. The limit on China’s capitalist development is spelled out by the US’s pacific fleet, the many military bases in the area, and clear threats of (nuclear) war by both Democrat and Republican regimes…. Health care in China is social. Hopefully it can continue to grow.

Healthcare in China has been extensively and intensively privatized. Between 1978 and 1999, the central government’s share of national health care funding declined to 15 percent from 32 percent. In 2007 total hospital revenues were 375 billion yuan, only 28.5 yuan came from government funds.

Health care has been commodified and put out of reach of many. the Ministry of Health reported that fewer than 10% of rural residents had health insurance, compared to 50% of urban residents. 87% of rural residents paid for all their healthcare. The rural health cooperatives have failed..

I was aware of the catastrophic deconstruction and privatization of China’s socialized health care system starting in the late 70’s. It’s obvious that I’ve a limited knowledge of China, and it shows in my unsupportable claim. So thanks for the reference. But it seems that the problematics of capitalist development in China has forced the state to reinvest in health care and the public sector since 2007. I’ve read that in 2015 there were plans to invest $175,000,000,000 in health care. That would be one trillion, 750 billion yuan at today’s rates.

Samir Amin believes that the development of capitalism in China (as in the rest of the world) will be limited by the global law of value. Competition with the established imperial powers (who are jittery even among themselves) seems to have reached a critical stage. But Amir thinks it might take 50 years to resolve things in a socialist direction!

If the development of capitalism in China will be limited by the global law of value, then surely the same law will limit the resolution of conflicts in that economy in the “socialist direction.”

My guess is that it will take a revolution, and one not confined to national boundaries to sort this.

The main point, however, is that there is no reality to Boffy’s argument that the service sector operates with little or no input from the manufacturing sector, and that reality is particularly acute when it comes to healthcare.

My only point in referring to the extent of healthcare spending in China was in response to your point about declining spending on healthcare and other “services” in your limited definition, as opposed to the increase in the actual service industry sector. Value added in the service sector, as opposed to just the value of intermediate goods consumed in the service industry sector, is growing not just in the developed economies, but in the developing economies too.

The other point, being as I set out in my posts on why this development of service industry makes the LTRPF defunct is that the main form of constant capital used in service industries is fixed capital, and not circulating constant capital (raw materials). Marx’s Law is based upon rising social productivity that causes a greater quantity (and despite declining unit values of material) and thereby value of material to form a rising proportion of the value of commodities, so that the share of fixed capital (wear and tear), and of labour (both paid and unpaid) in that value declines, so that the rate of profit falls, as the mass of profit rises.

The point is that, for the reason Marx sets out that this new fixed capital, as it raises social productivity, means that even if the price of the fixed capital rises, it continually forms a smaller portion of the value of output – whether in manufacturing production, agriculture, or service industry.

“While the circulating part of constant capital, such as raw materials, etc., continually increases its mass in proportion to the productivity of labour, this is not the case with fixed capital, such as buildings, machinery, and lighting and heating facilities, etc. Although in absolute terms a machine becomes dearer with the growth of its bodily mass, it becomes relatively cheaper. If five labourers produce ten times as much of a commodity as before, this does not increase the outlay for fixed capital ten-fold; although the value of this part of constant capital increases with the development of the productiveness, it does not by any means increase in the same proportion. We have frequently pointed out the difference in the ratio of constant to variable capital as expressed in the fall of the rate of profit, and the difference in the same ratio as expressed in relation to the individual commodity and its price with the development of the productivity of labour.”

(Capital III, Chapter 15)

So, for example in the example I gave above, £100 of fixed capital (wear and tear) amounted to £1 per connected phone, where it enables only 100 phones to be connected, whereas new superior fixed capital, even if it costs £200 (wear and tear) only amounts to £0.20 per connected phone, where its superior technology, and consequent higher level of productivity enables 1,000 phones to be connected.

The same is the case with the labour. Lower productivity of the original technology meant that 10 workers (operators and engineers) were required, and their wages in total at £100 amounted to £1 per connected phone. On the basis of the old technology, to service 1,000 phones would have required 100 workers, and wages of £1,000. But, the higher level of productivity of the new technology means that only say 70 workers are required, with wages of £700, so that even accounting for the additional £100 of wear and tear of the new fixed capital, a saving of £100 on wages is made.

Relatively less labour is employed (70 workers rather than 100), but absolutely more workers are employed, and this absolutely greater mass of labour produces absolutely more surplus value, whilst the capital required to produce that surplus value has fallen relatively, which results both in a rise in the annual rate of profit, and in the rate of profit/profit margin.

The relation of that to crises of overproduction, and how they lead to capital introducing intensive accumulation (the basis of the law of falling profits) is also summarised in today’s blog post on TOSV Chapter 12.

This must definitely be my last comment on this thread, as I have too much to do.

This is all a bit odd. The title of the post at the link provided by Boffy is TOSV Chapter 12. Chapter 12 is about Ricardo’s Theory of Rent. URL says part II chapter 17. Chapter 17 is exactly the right place to look for the most systematic exposition Marx gave of crisis theory. Contents of the post seem to be from elsewhere.

eg this is from Capital Vol 3 Chapter 15:

“The increase in the productiveness (which, moreover, we repeat, always goes hand in hand with a depreciation of the available capital) can directly only increase the value of the existing capital if by raising the rate of profit it increases that portion of the value of the annual product which is reconverted into capital…”

That paragraph begins:

“With the development of the capitalist mode of production, therefore, the rate of profit falls, while its mass increases with the growing mass of the capital employed….”

Boffy omits the beginning and quotes the passage in support of his view that the rate of profit should be calculated on turnover rather than on capital advanced and therefore does not fall because shift to service industries is a shift to fixed capital rather than circulating capital.

I can only guess that perhaps he thinks that because Marx says existing fixed capital is depreciated by technological obsolescence the total value of fixed capital goes down rather than increasing when it gets replaced by more capital intensive techniques in the wave of new investment that starts the next cycle. That doesn’t make any sense but it is the only guess I have (based on nothing more than the highlighted link to an explanation of depreciation which doesn’t discuss the cyclical and also continuous replacement of depreciated fixed plant by more capital intensive new plant with inensive accumulation and increasing organic composition).

Whatever Marx might have got wrong the rate of profit is calculated on capital advanced, not turnover. In fact Marx knew that and said so explicitly referring to the “capital employed” not the capital turned over in the bit Boffy omits.

Yet despite this total incomprehension Boffy also says:

“The Law of the Tendency for the Rate of Profit to Fall, therefore, is not a cause of crises of overproduction, according to Marx, but is the means for resolving them, by raising the level of social productivity, creating a relative surplus population, reducing wages, and raising the rate of surplus value, whilst simultaneously depreciating the value of the existing fixed capital stock – moral depreciation – and reducing the unit value of materials, although increasing the mass of materials processed by any given quantity of labour.”

Leaving aside “reducing wages” I think the essential point there is spot on – exactly what Marx understood, Maksakovsky explained and what advocates of LTFRPF as an explanation for crisis get wrong.That is:

The increase in organic composition of capital and consequent TRPF does not cause crises but is part of the phase in the cyclic process that resolves the immediately preceding crisis phase and prepares for the next cycle at a higher level of social productivity.

Yet somehow this correct rejection of the LTRPF crisis theory prevailing here is conflated in Boffy’s understanding with a claim that there is no such tendency at all.

I honestly don’t get how someone could have a better grasp of which way round it goes than most people while not understanding that the rate of profit is calculated on capital advanced (which is mainly fixed capital) rather than on turnover.

But I can speculate that grim determination to just press on and ignore critical responses instead of engaging plays a big part in maintaining such a contradictory state.

“The point is that, for the reason Marx sets out that this new fixed capital, as it raises social productivity, means that even if the price of the fixed capital rises, it continually forms a smaller portion of the value of output – whether in manufacturing production, agriculture, or service industry.”

This is what Boffy thinks makes the LTRPF “defunct” rather than just not being an explanation for crises.

In simple words fixed capital CANNOT “form a smaller portion of the value of output” because it is FIXED. Only CIRCULATING capital (including depreciation of fixed capital) forms part of the value of output. The proportion of surplus value to capital advanced falls because that rate is calculated on an increasing capital ADVANCED including (mainly) an increased fixed capital (eg the cities half the world now lives in that provide the infrastructure for the “services” that are now a large part of output).

“I honestly don’t get how someone could have a better grasp of which way round it goes than most people while not understanding that the rate of profit is calculated on capital advanced (which is mainly fixed capital) rather than on turnover.”

Welcome to Boffy’s world, where he cherry-picks and just makes stuff up.

The answer to your confusion, of course, has nothing to do with grasps, better or worse and everything to do with agenda, of which Boffy has his own.

I really did not want to comment further, but felt your confusion was so apparent that I had to. First of all, you seem to be confused about what the link was to. The blog post is quite clearly headed “Theories of Surplus Value, Part II, Chapter 12 – Part 19”. How you think it is headed Chapter 17 I really don’t know, but that’s only a minor element of your confusion.

Both Marx and Engels make clear that the rate of profit is calculated on the laid-out capital, i.e. the circulating capital laid out for materials, wages, and wear and tear of fixed capital for the year.

Marx makes that clear in Theories of Surplus Value Chapter 16.

“{Incidentally, when speaking of the law of the falling rate of profit in the course of the development of capitalist production, we mean by profit, the total sum of surplus-value which is seized in the first place by the industrial capitalist, [irrespective of] how he may have to share this later with the money-lending capitalist (in the form of interest) and the landlord (in the form of rent). Thus here the rate of profit is equal to surplus-value divided by the capital outlay.”

What is calculated on the advanced capital, as they again describe is not the rate of profit, i.e. the profit margin, but the annual rate of profit, from which is also derived the average annual rate of profit.

The advanced capital is the value of fixed capital, plus the value of circulating constant capital plus variable capital advanced for one turnover period.

The difference between the rate of profit calculated on the laid out capital, and the annual rate of profit, calculated on the advanced capital is also made clear by Engels in Capital III, Chapter 4, and follows on from Marx’s extensive elaboration of the difference between the rate of surplus value, and annual rate of surplus value set out in Capital II.

Its on that basis that I have calculated the annual rate of profit.

So I’m afraid that the confusion and lack of comprehension of this basic Marxist concept is entirely on your part, and would have been clear to you had you read more carefully what I and Marx have written.

“I can only guess that perhaps he thinks that because Marx says existing fixed capital is depreciated by technological obsolescence the total value of fixed capital goes down rather than increasing when it gets replaced by more capital intensive techniques in the wave of new investment that starts the next cycle.”

Why do you come to that conclusion, when I have set out clearly what is being said?

The value of fixed capital as a proportion of the value of output falls for the reason Marx describes, and as was given in the quote I provided, i.e.

““While the circulating part of constant capital, such as raw materials, etc., continually increases its mass in proportion to the productivity of labour, this is not the case with fixed capital, such as buildings, machinery, and lighting and heating facilities, etc. Although in absolute terms a machine becomes dearer with the growth of its bodily mass, it becomes relatively cheaper. If five labourers produce ten times as much of a commodity as before, this does not increase the outlay for fixed capital ten-fold;”

This is also the point that Marx makes in Capital III, Chapter 6.

“Further, the quantity and value of the employed machinery grows with the development of labour productivity but not in the same proportion as this productivity, i. e., not in the proportion in which this machinery increases its output. In those branches of industry, therefore, which do consume raw materials, i. e., in which the subject of labour is itself a product of previous labour, the growing productivity of labour is expressed precisely in the proportion in which a larger quantity of raw material absorbs a definite quantity of labour, hence in the increasing amount of raw material converted in, say, one hour into products, or processed into commodities. The value of raw material, therefore, forms an ever-growing component of the value of the commodity-product in proportion to the development of the productivity of labour, not only because it passes wholly into this latter value, but also because in every aliquot part of the aggregate product the portion representing depreciation of machinery and the portion formed by the newly added labour — both continually decrease. Owing to this falling tendency, the other portion of the value representing raw material increases proportionally, unless this increase is counterbalanced by a proportionate decrease in the value of the raw material arising from the growing productivity of the labour employed in its own production.”

And, its clear from this statement by Marx that he does not share your belief that,

“fixed capital CANNOT “form a smaller portion of the value of output” because it is FIXED.”

Here he sets out exactly the point I have made that the fixed capital DOES form an increasingly smaller part of the value of output, because of this technological development, which means both that more technologically developed machines produce a proportionally greater output relative to their value, and because technological change brings about a rise in productivity that itself cheapens the value of machines.

This same process, as Marx sets out, DOES also lead to a moral depreciation of the existing fixed capital stock, and is one of the means of raising the rate of profit, as a remedy for the previous squeeze on profits, but that was not the main point that was being made in this regard. The post was not attempting to deal with the issue at hand, but is a general post as part of the on going series of posts on Theories of Surplus Value.

You say,

“Yet somehow this correct rejection of the LTRPF crisis theory prevailing here is conflated in Boffy’s understanding with a claim that there is no such tendency at all.”

I am pleased that you agree with my analysis of which way around the relation between crises and the LTPRF runs, but this statement here is also not correct. I do not deny any tendency for the LTPRF. It applies for those conditions which Marx describes for it, i.e. in material processing industries. Though, even there, for the reasons I have set out previously, I think its arguable that the countervailing forces were stronger than the tendency itself. My point is that in economies where 80% of value added comes from service industry, and only 20% of value added comes from agriculture, mining, manufacture etc. the law is defunct, because in those industries the processing of material, which is the basis of Marx’s Law does not take place, at least on any significant scale.

All of the factors that lead towards the actual cause of crises, however, remain in place. The extensive accumulation of capital continues to result in a cycle where the growth of productivity slows, and where existing labour supplies start to get used up, and wages rise and the rate of surplus value falls, causing a squeeze on profits, for example. As the wage share rises, and the demand for wage goods rises, capital is led by competition to have to accumulate additional capital to produce these wage goods. This added demand for capital, at a time when profits are being squeezed by higher wages, causes the demand for money-capital to rise relative to the supply of money-capital (from profits) so interest rates rise, and asset prices get deflated. The rise in interest rates again causes a squeeze on the profit of enterprise, i.e. the part of profit available for accumulation. A similar thing may happen with rents.

As the wage share rises, then as Marx sets out in Capital II, workers may begin to buy some previous luxury goods, but one reason for this is that the price elasticity of demand for previous wage goods, means that as their consumption has increased, workers can only be persuaded to buy more of them if the market price is reduced by ever larger percentages.

“The same value can be embodied in very different quantities [of commodities]. But the use-value—consumption—depends not on value, but on the quantity. It is quite unintelligible why I should buy six knives because I can get them for the same price that I previously paid for one.” (TOSV3 p 118-9)

This need to reduce market prices by ever larger amounts in order to sell the output, and realise the produced surplus value, at a time when profits are being squeezed by rising wages, rising interest, rising rents, enhances the potential for commodities to be unable to sell at prices that reproduce the consumed capital, and thereby results in a crisis of overproduction.

It is nothing to do with the LTPRF, which arises on the back, of the intensive accumulation of new labour saving technologies introduced to deal with those conditions. Does that still apply under the conditions I have set out, in relation to service industries? It applies to this extent. In such a period, capital is led to introduce these new labour saving technologies for precisely that reason of creating a relative surplus population, and and so reducing wages, and raising the rate of surplus value.

In material processing economies that results in the LTPRF because, the share of material in final output rises. In service industry dominated economies that still happens, but it is insignificant in terms of total output value. The point is that when these technologies are being introduced in the crisis phase of the cycle, and into the stagnation phase, capital is concentrating on producing the existing level of output at lower cost, with less labour. The supply of labour in such conditions rises faster than the demand for labour, which creates the relative surplus population, pushes down wages and raises the rate of profit.

In other words, all of the conditions for dealing with a squeeze on profits in the mature phase of the cycle remain in place, but without the attendant tendency for the rate of profit to fall that intensive accumulation brings with it, because the processing of raw material, which is what is behind that law no longer forms the most significant element of value creation.

So let’s see what Marx, and Engels, say, and in as few words as possible. I’ve got an idea. Let’s look at volume 3 of Capital, Part 3, chapter 13 “The law as such…”

First Engels in his note says: “The rate of profit is calculated on the total capital invested, but for a definite time, actually a year. The rate of profit is the ratio of the surplus-value, or profit, produced and realised in a year, to the total capital calculated in per cent.”

OK, got that? total capital invested, not the portion of capital advanced.

And Marx? Marx says “The rate of profit must be calculated by measuring the mass of produced and realised surplus-value not only in relation to the consumed portion of capital reappearing in the commodities, but also to this part plus that portion of unconsumed but applied capital which continues to operate in production. However, the mass of profit cannot be equal to anything but the mass of profit or surplus-value, contained in the commodities themselves, and to be realised by their sale.”

Got that? “not only in relation to the consumed portion of capital reappearing in the commodities” –which of course is the circulating portion– “but also to this part plus that portion of unconsumed but applied capital which continues to operate in production…..” which is of course the fixed portion.

Marx in his Economic Manuscripts 1857-1864 also puts the discussion of the conflicting impact of fixed capital on profit in terms something like these- that the problem is the value of fixed capital is required as a whole in the production process, but can only be realized incrementally in the valorization process.

Now being the harsh, severe, person that I am, I might suggest that we compare what Marx, and Engels, say to Boffy’s nonsense about the TFROP. But I won’t. I’ll suggest instead that Boffy provide us concrete data that buttress his claim that TFROP is no longer applicable because of the overwhelming portion of value that is now attributable in the service sector and the fact that the service sector itself because if deploys less fixed capital, or is it more fixed capital, and more circulating capital, or is it less circulating capital, because it is independent, or is that dependent on the manufacturing center, is itself exempt from the TFROP.

The fact that anyone takes Boffy’s quote mongering as an understanding of Marx is beyond belief.

As sartesian has dealt with the quote mongering I will instead try to speculate on what your confusion about it is.

As I see it you are convinced, like many people, that the rate of profit has not been falling and that this is related to the shift to service industries which have a relatively small proportion of constant capital “inputs” including both raw materials and depreciation of fixed capital compared with their variable capital of wages for “service employees”. Nothing odd or unusual about that, though I disagree.

But you also closely study Marx and actually have a better understanding than most, that crises drive the organic composition and TRPF rather than the other way around. You also reject the widely held (among “marxians”) explanation of crises as due to the LTRPF. That is more unusual and odd, but I agree and can even feel less harsh and severe about other oddities since I am also “odd” in that respect.

Then you also share the widely held (among “marxians”) support for concepts of a Kondratiev “long wave”. Again nothing unusual or odd about that, though I disagree. Perhaps others find it odd because they thought it was an expanding long wave during most of the post second world war period but find it perplexing how anyone could see it that way in the current decade. Doesn’t worry me as I am interested in the regular business cycle and why it hasn’t been punctuated by crises for decades but looks like headed for another very big one. Not interested in “long waves”. So won’t bother arguing about them or getting annoyed about others doing so.

But finally, and this is the really odd bit, my guess is that you somehow manage to reconcile these views by a quite bizarre misreading of Marx.

You seem to be quoting Marx as pointing out that depreciation of fixed capital actually tends to decline as a proportion of constant capital and of turnover as thought that somehow supports your view. Marx does indeed say that. But depreciation of fixed capital is NOT the fixed capital invested but merely the much smaller part amortized as depreciation each year.

It just doesn’t make sense that you would misunderstand that the rate of profit everybody else is talking about is the annual rate of profit on capital invested. This includes (mostly) the fixed part of fixed capital (plus working capital including the part of depreciation of fixed capital advanced in working capital, and input and output and commercial stocks, also including the small part of depreciation of fixed capital tied up in such stocks). The Gross Output includes most of the depreciation of fixed capital (all but the bit tied up in working capital and stocks) as well as the rest of the constant capital (raw materials etc), variable capital and surplus value. But it does not include the “fixed” part of fixed capital since that does not circulate. The annual rate of profit is calculated on the capital advanced ie invested, not the capital circulated so it is mainly calculated on the fixed capital which is much larger than the depreciation on fixed capital or any other part of circulating capital.

As Marx made clear he is talking about the same rate of profit on capital invested as everybody else except Boffy. Both the quotes from sartesian and the bits I pointed out that you omitted from a quote you provided make that quite clear. The effort involved in not seeing it seems quite extraordinary. So I can only advance this explanation as speculation.

Congratulations Arthur, for earning the categorization Boffy applies to all those who question what planet he lives on— “sock puppet.” Believe me, I’ve been called worse and by much better people. So where your designation with a bit of pride.

No, unfortunately I do take pride in having restrained myself. But what I would be more justified in taking pride in would be successfully clearing up confusion.

Most people’s confusion about these issues results in them simply giving up and leaving it to the advocates of various competing fanciful theories to sort it out among themselves. Relatively few just make up their own but both reflect the fact that clear and convincing explanations are not available.

Unfortunately Marx was only able to use clumsy arithmetical examples given the mathematical illiteracy of his educated 19th Century audience. (Though I suspect it is no coincidence that his later studies in mathematics focused on differential calculus and in particular Lagrange).

Fortunately there is now widespread literacy in simple algebra taught at secondary level and a significant section of workers in advanced countries have tertiary education in STEM disciplines that require some of what used to be called “higher mathematics” in Marx’s time.

They are less likely than most current “marxians” to be intimidated by the linear algebra used by charlatans like Steedman.

One useful outcome from this discussion is that I am now fully convinced a detailed presentation and development of the reproduction schemes is essential for explaining both Marx and Maksakovsky. This must be extended to explicitly include, as well as the flows, also the Stocks of Fixed, Working and Inventory capital, money, prices, ownership, workers, capitalists, wages, profits and interest rates while retaining as far as possible the “toy model” simplicity of the two departments.

Key point is the one we have been attempting to discuss. Range of existing technologies (with different physical paramaters for ratios) with emergent prices from dialectically inevitable disproportions between production and consumption, demand and supply with movements of capital invested cyclically shifting to higher organic composition.

An executable “toy model” actually illustrating that for a few cycles could be immensely educational. But will require cooperative hard work.

You might be familiar with the sort of simulation models used in transport networks and logistics?

The reality remains as Lenin stated it a century ago. None of the Marxists understood capital (he wasn’t just talking about “marxians”).

“Given Marx and Engels attention to the important role of the rate of turnover of capital, it would seem, therefore, incomprehensible that Marx in setting out the “countervailing forces” to the law of falling profits would not include a long section of that Chapter setting out the way technological improvement, by raising social productivity, necessarily shortens production times and circulation times, and thereby raises the rate of turnover of capital, and thereby causes the annual rate of profit to rise substantially.”

This is entirely covered in a (short) third section of Vol3 Ch 14 “Cheapening of the elements of constant capital”. Fixed capital is capital that circulates over many years. Its increase lengthens the turnover period and decrease shortens it. Technical change does cheapen it as well as other elements of constant capital and this is perhaps the most important countervailing factor raising the rate of profit to the more important factors also based on technical change that reduce the rate of profit.

As I understand it you may now be interested enough to resume pounding out long explanations of why you are right. I am glad I have got you interested, but will not participate in encouraging that pounding.

If instead you do “exercise restraint, …so as not to detract from my other work” you might pause first to consider the remote possibility that you are wrong. Try to present the case against what you think yourself as best you can. Understanding why others think what they do would at least help you to convince others.

You say it is incomprehensible to you that Marx did not write a long section explaining that technological improvement necessarily causes the annual rate of profit to rise substantially (unless of course he has the same definitions as you). Nevertheless you find yourself distracted by needing to write such long sections and you do have the same definitions as yourself.

Marx insisted both that the overall tendency would be for the rate of profit to fall and that there would necessarily be lots of technological development. But somehow he did not find it necessary to write the long sections that you are finding necessary. Try to figure out some other possible explanation that does not START from the premise that you have got it right.

Try to make it comprehensible to you that Marx might have had a different view than you and that he might have also been right.

Try writing nothing at all about it until you are able to give a convincing account of what could be the case if you were wrong.

Anyway, as mentioned in another comment this has at least encouraged me to see the necessity of a clear exposition of the reproduction schemes including the “stocks” as well as the flows and presenting that in modern consise algebraic notation rather than the lengthy tables and arithmetical examples that Marx had to use and that you are trying to use. That will require major effort and will not be assisted by further discussion until there are some equations to discuss. You might want to consider working on something similar yourself.

In that connection see Ed George’s glossaries and summaries of the chapters on the reproduction schemes, which have some diagrams and a set of equations at the end:

(I couldn’t see it on your blog roll but assume you would want to know about what others doing a close reading of Capital are doing)

PS You could also note that Marx announced that he had provided a correct explanation of the falling rate of profit that Smith and Ricardo had failed to explain correcty. He attached great importance to explaining this phenomenon that others were aware of. They were not talking about profit margins nor about any concepts developed by Marx or by you. They were talking about the very well known rate of return on capital invested (though often confusing it with the related rate of interest on money capital invested) and the very well known FACT that throughout the nineteenth century there was a noticeable trend for THAT rate to fall. Marx was talking about what they were talking about. It is also in the news quite a bit these days with real interest rates not only falling but hitting zero. This concept of return on capital invested goes back to merchant capital. It is the basic point of capitalists engaging in M…M’. It mattered to them that this rate was falling. It also mattered to Marx.

Even if you were right it would be unavoidable that most other people would assume Marx was talking about the same rate of profit that they were. If you want to convince them you need to be able to explain their view. Just repeating yours won’t help you do that.

“This is entirely covered in a (short) third section of Vol3 Ch 14 “Cheapening of the elements of constant capital”. Fixed capital is capital that circulates over many years. Its increase lengthens the turnover period and decrease shortens it. Technical change does cheapen it as well as other elements of constant capital and this is perhaps the most important countervailing factor raising the rate of profit to the more important factors also based on technical change that reduce the rate of profit.”

But, in fact, that section, and none of the others in Chapter 14, have anything whatsoever to say about the effect of an increase in the rate of turnover, as a countervailing force to the falling rate of profit! The reason as I said is that the rate of turnover only acts upon the annual rate of profit to raise it, whereas what Marx is talking about is the rate of profit/profit margin, and its tendency to fall, and the countervailing forces to that fall.

I should also have pointed out that when you say, “Fixed capital is capital that circulates over many years. Its increase lengthens the turnover period and decrease shortens it.” this shows that you clearly do not understand the concept of the rate of turnover of capital, which Marx deals with at length (in fact about half of Volume II is devoted to the issue), in which the point is made that the period of turnover relevant to the calculation of the annual rate of surplus value, and subsequently the annual rate of profit is the period of turnover of the circulating capital, and in fact, Marx and Engels set out that in practice this means the turnover of the variable capital, because the variable capital processes, and thereby turns over the circulating capital along with it.

The whole point of introducing additional and particularly newer more effective fixed capital, is to raise productivity, which necessarily has the effect of reducing the working period/production time, and as Engels describes in relation to transport and other forms of communication, also reduces the circulation time, thereby raising the rate of turnover.

In other words, Marx and Engels say the complete opposite to what you are claiming. As a scientist, I always start from the point of view that I may be wrong, and test hypotheses on that basis before committing to a particular viewpoint, however, having spent more than 40 years studying the work of Marx and other classical Marxists, there is a point at which putting the clearly wrong perspective that you have been elaborating on an equal footing is simply a waste of time.

I’m afraid that when you try to claim that Section III of Chapter 14, relates to the rate of turnover of Capital, when it clearly is only about the effect of cheapening the commodities that comprise the constant capital, that suggests that you are not living up to the principles you recommend, but rather appear to be simply searching around for some quote, however, irrelevant to back up your original contention.

That is more like the method of a troll like Sartesian and his sock puppets.

“If we consider the enormous development of the productive forces of social labour in the last 30 years alone as compared with all preceding periods; if we consider, in particular, the enormous mass of fixed capital, aside from the actual machinery, which goes into the process of social production as a whole, then the difficulty which has hitherto troubled the economist, namely to explain the falling rate of profit, gives place to its opposite, namely to explain why this fall is not greater and more rapid. There must be some counteracting influences at work, which cross and annul the effect of the general law, and which give it merely the characteristic of a tendency, for which reason we have referred to the fall of the general rate of profit as a tendency to fall.”

You have successfully demonstrated that if you don’t consider the enormous mass of fixed capital then there is no need to explain the falling rate of profit and by simply ignoring what he was talking about you conclusively demonstrated that his theory is “defunct”. So why bother to keep repeating yourself?

Perhaps because others, like Marx, do not ignore the enormous mass of fixed capital and remain unable to see what is so blindingly obvious to you?

But, neither that first paragraph or any of the others within Chapter 14 are about the potential for rises in the rate of turnover of capital to bring about a rise in the annual rate of profit, which if Marx were discussing the annual rate of profit rather than the rate of profit, would be a powerful if not completely overriding “countervailing force”!

You oddly believe that the consequence of introducing additional fixed capital is to REDUCE the rate of turnover of capital, whereas Marx and Engels spend a considerable amount of time in both Capital II and III, to demonstrate that the effect of this additional fixed capital, particularly more technologically advanced fixed capital, is to RAISE the rate of turnover, precisely because in raising productivity it means that the production time and circulation time for capital is reduced, so that a smaller amount of circulating capital has to be advanced for any given amount of capital laid out during the year, or conversely the same amount of capital advanced having turned over more times during the year brings about an increased mass and value of capital laid out during the year. Again its precisely that fact that brings about a higher annual rate of profit, but a lower rate of profit/profit margin.

Nowhere have I “ignored” the enormous mass of fixed capital, I have made it central to the argument made! That you make such a comment indicates again not only that you do not carefully read what Marx and Engels actually say, you clearly have not read carefully what I have said, or else you have done so, and for some reason known perhaps only to yourself have decided to misrepresent it, just as above you have misrepresented Capital III, Chapter 14, as in some way dealing with the question of the effect of rises in the rate of turnover of capital, when quite clearly it does no such thing.

Moreover, I HAVE explained the basis of the falling rate of profit at length. I have explained it as Marx does in Capital III, and TOSV, as it applies to manufacturing dominated economies, as rises in productivity, brought about by those very masses of fixed capital, lead to a given mass of labour processing a much greater mass of raw material. But, for the reason that Marx and Engels set out, because this relates to the cost of production, i.e. to the mass of capital laid out on those raw materials during the year, the wear and tear of fixed capital, during the year, and the wages paid during the year, it clearly does not apply to the annual rate of profit, unless you assume that the capital turns over once during the year (an assumption that both Marx and Engels make for simplification in a number of places throughout Capital III), which is based not on the laid out capital, but on the advanced capital for one turnover period. Both Marx and Engels themselves explicitly make this very point, distinguishing the rate of profit from the annual rate of profit.

Again, because the average or general rate of profit is based upon the annual rate of profit, you can only draw the conclusion that this rate falls as a result of a rise in the organic composition of capital, if you make the assumption that the capital turns over once a year, so that the annual rate of profit and rate of profit are the same, or if you assume that there is no change in the other determinant of the annual rate of profit, i.e. the rate of turnover of the total social capital. But, as both Marx and Engels describe, the effect of introducing additional fixed capital, particularly newer more advanced fixed capital, is not only to raise the organic composition of capital, by raising productivity so that more material is processed, by a given mass of labour in a given period of time, it is to thereby mean that a given mass of material is processed by the same amount of labour in a shorter period of time, so that the working period is reduced, so that the amount of capital advanced declines, even as the capital laid out rises. The rate of turnover of capital is raised, and the annual rate of profit is raised along with it. The same rises in productivity apply to transport and communications, to payments systems and so on, as Engels describes, which reduces the circulation time, which again raises the rate of turnover, and raises the annual rate of profit.

Marx and Engels cover these effects of changes in technology, and the growth of fixed capital at length – about half of Volume II – in Capital II and III, on the annual rate of surplus value, and annual rate of profit. Yet, there is absolutely no mention of it, in Chapter 14, as being a “Countervailing Force”! Why? Because it is not a countervailing force to the tendency for the rate of profit/profit margin to fall. Rather than being a countervailing force, it is a major contributor to the fall in the rate of profit/profit margin, because it leads to the rapid increase in the laid out capital in proportion to the advanced capital. Marx does not discuss it as a countervailing force in Chapter 14, precisely because it is not a countervailing force to the rate of profit he is describing, i.e. the rate of profit as the proportion of profit to cost of production/laid out capital, i.e. the profit margin. It is only a countervailing force to any fall in the annual rate of profit.

I have also described the causes of a rate of profit that Marx also describes, and which were set out by Smith, Ricardo, Malthus and others of his predecessors, which arise from the opposite conditions that underlie Marx’s law of falling profits. In other words, these other theories of falling profits rely on some form of profits squeeze that comes down to rising input costs. Marx also notes that these causes of falling profits can exist, but only as a temporary phenomena. I agree.

What is defunct is the Marxian Law of the tendency for the rate of profit to fall, precisely because the basis Marx gives for it is the rise in the proportion of processed materials, arising from a rise in productivity that goes along with the introduction of more and better fixed capital. In an economy where material processing is no longer a dominant feature of the production of value added, it can no longer be a dominant factor.

I’m afraid that once again it is you that is ignoring what Marx was talking about, as well as misrepresenting what I have said. And again it is you that has failed to live up to the principles you previously set out, and who has reached for any old quote, however, irrelevant, here in relation to Chapter 14, to try to lamely support your original contention rather than honestly ask yourself the question of whether your original hypothesis may have been wrong.

That as I said previously, is the method of a troll like Sartesian and his sock puppets. As and when I have time, I will continue to produce a more comprehensive refutation of the confused arguments you mad previously, but given the above, I am not wasting too much time on it.

“The rate of profit must be calculated by measuring the mass of produced and realised surplus-value not only in relation to the consumed portion of capital reappearing in the commodities, but also to this part plus that portion of unconsumed but applied capital which continues to operate in production.”

You clearly Do NOT read what Marx says carefully, because Marx and Engels here are detailing precisely the basis upon which the ANNUAL Rate of profit as opposed to the rate of profit is calculated.

If you read Chapter 13 carefully, you would see that they makes that perfectly clear, as does Engels in other Chapters and sections. So, Engels writes in that Chapter,

“The rate of profit is calculated on the total capital invested, but for a definite time, actually a year. The rate of profit is the ratio of the surplus-value, or profit, produced and realised in a year, to the total capital calculated in per cent. It is, therefore, not necessarily equal to a rate of profit calculated for the period of turnover of the invested capital rather than for a year. It is only if the capital is turned over exactly in one year that the two coincide.”

He then goes on to illustrate this by calculating the rate of profit and annual rate of profit in three different scenarios where the amount of fixed capital to circulating constant capital varies, and where the consequence is that the amount of circulating capital ADVANCED differs from the amount LAID-OUT, and which, thereby also leads to a situation where the total amount of capital fixed and circulating ADVANCED as against LAID OUT varies, and which thereby results in a different annual rate of profit compared to the rate of profit.

As Engels states,

“On the other hand, the profit made in the course of a year is merely the sum of profits on commodities produced and sold during that same year. Now, if we calculate the profit on the cost-price of commodities, we obtain a rate of profit = p/k in which p stands for the profit realised during one year, and k for the sum of the cost-prices of commodities produced and sold within the same period. It is evident that this rate of profit p/k will not coincide with the actual rate of profit p/C, mass of profit divided by total capital, unless k = C, that is, unless the capital is turned over in exactly one year.”

This is never the case, because the fixed capital is never fully consumed in a year, which is the meaning of the quote you gave that the rate of profit must be calculated on the basis of the total fixed capital, and not just on its wear and tear, whereas the circulating capital will turn over several times during the year, and the more productivity rises, the greater the rate of this turnover of the circulating capital will be!

Did it not occur to you that your argument is completely undermined by the fact that Marx and Engels use the term “rate of profit” here even within the same paragraph to refer to two completely different definitions of that rate, one being the annual rate of profit calculated on the total advanced capital, and the other the rate of profit/profit margin, calculated on the cost of production???

To make it clearer still, Engels notes,

“We see, therefore, that only in case II, where the turned-over capital-value is equal to the total capital, the rate of profit per piece, or per total amount of turnover, is the same as the rate of profit calculated on the total capital. In case I, in which the amount of the turnover is smaller than the total capital, the rate of profit calculated on the cost-price of the commodity is higher; and in case III, in which the total capital is smaller than the amount of the turnover, it is lower than the actual rate calculated on the total capital. This is a general rule.”

The point is illustrated by Marx in Chapter 9. He says,

“The price of a commodity, which is equal to its cost-price plus the share of the annual average profit on the total capital invested (not merely consumed) in its production that falls to it in accordance with the conditions of turnover, is called its price of production. Take, for example, a capital of 500, of which 100 is fixed capital, and let 10% of this wear out during one turnover of the circulating capital of 400. Let the average profit for the period of turnover be 10%. In that case the cost-price of the product created during this turnover will be 10c for wear plus 400 (c + v) circulating capital = 410, and its price of production will be 410 cost-price plus (10% profit on 500) 50 = 460.”

So, what do we have here? We have the average rate of profit in the economy is 10%. This average rate of profit is indeed calculated on the total advanced capital for the turnover period, i.e. the full value of the fixed capital, as opposed to just the wear and tear, plus the value of the advanced circulating capital (material and wages), i.e. advanced for the turnover period, as opposed to the year.

Note that Marx specifically speaks here of the turnover of the CIRCULATING capital, because as set out in Capital II, the turnover period is the turnover of the circulating capital NOT the fixed capital as you bizarrely have implied. The total value of this advanced Capital fixed and circulating is £500. The 10% average rate of profit on this ADVANCED capital is then equal to £50. This is the amount of average profit that the firm adds to its cost of production, to give the price of production k + p.

But, what does Marx set out is that cost of production and price of production. NOT £550, but a cost price of £10 for wear and tear, and £400 for circulating capital (c + v), which gives a price of production not of £550, but of £460 – cost of production £410 plus average profit of £50. But, as marx and Engels say, the rate of profit, which is the basis of the Law of falling profits is the ratio of the profit to the laid-out capital p/k, i.e. profit to cost of production.

What is this rate of profit p/k, here? It is not 10%, the annual rate of profit, but 50/410 = 12.20%. Marx has assumed that the circulating capital itself here turns over just once during the year. But, as Engels shows in his three examples, where the circulating capital turns over more than once during the year this will have an even more pronounced affect on the rate of profit compared to the annual rate of profit.

So in his third example, Engels says,

“Let the capital rise to £15,000 owing to a constant growth of the productiveness of labour, and let it annually produce 30,000 pieces of the commodity at a cost-price of 13s. per piece, each piece being sold at a profit of 2s., or at 15s. The annual turnover therefore = 30,000×15s. = £22,500, of which £19,500 is advanced capital and £3,000 profit. The rate of profit p/k then = 2/13 = 3,000/19,500 = 15 5/13%. But p/C = 3,000/15,000 = 20%.”

So, Engels distinguishes here clearly between an advanced capital of £15,000, and a laid-out capital of £19,500 (Engels makes a slip when saying £19,500 “advanced”, because in the context he clearly means laid out. In other words, here the laid-out capital is £4,500 more than the advanced capital. The reason is that the circulating capital turns over more than once during the year.

If we take Marx’s assumption that the fixed capital loses 10% per year as wear and tear, and assume that the £15,000 of advanced capital comprises £10,000 fixed capital, and £5,000 circulating capital, we would have in the calculation of k, £1,000 for wear and tear, plus £18,500 for circulating capital. This £18,500 of circulating capital would thereby comprise 3.7 turnovers of the circulating capital.

Had you read these chapters carefully that would have been apparent. Its precisely because Marx and Engels often use terms to mean different things in different contexts, and assume an honest reader who will set the terms appropriately in context, rather than having the foresight to consider the possibility of trolls simply snatching a particular term out of such context that it becomes necessary to “quote monger” so as to set those terms and arguments in their proper context, and so reduce the ability of trolls and others to seize upon any such ambiguity for the purpose purely of point scoring.

But then given your apparent sharing of interest in that well known and popular sphere of “simulation models used in transport networks and logistics” with Sartesian, I suppose we should not be surprised that you share many of his trolling methods of argument.

But I do not share sartesian’s view that Boffy is a troll. I don’t think his behaviour is to attract attention. If it was trollish the standard advice of “don’t feed the trolls” would apply.

The behaviour seems more like what Lenin explained with “abusive language often serves as a screen for utter lack of principles and sterility, impotence, angry impotence, on the part of those who use such language”.

So, only skimming Boffy’s post, but reading what has been quoted from Chapter 13 closely, I can confirm that these are PRECISELY the right place for Boffy to look.

Having identified EXACTLY where both Marx and Engels say the precise opposite of what Boffy has read them to say, I don’t think there is much I can add.

All Boffy needs to do is try to figure out why anybody MIGHT read them with a directly opposite understanding to Boffy. Then if he does not realise that it was his own preconception that led him to misunderstand, he could at least save himself an awful lot of repetition by providing a clear and simple analysis of how others got it wrong. That would be more effective than insisting that what is apparent to Boffy must be apparent to others and therefore rejection of Boffy’s reading must be malicious.

Repetition of long quotes that are “perfectly clear” to Boffy when supplemented by his even longer elaborations will not help.

“Reckoned on the basis of the total capital, however, the rate of profit p/C is 2500/8000 = 31.25%”

So we get a lower rate of profit when there is even a small proportion of fixed capital that does not turnover during the annual period taken as the basis for c+v.

“It is readily apparent that this profit rate p/k can only coicide with the ACTUAL PROFIT RATE (emphasis added) p/C, mass of profit dividided by the TOTAL CAPITAL, (emphasis added) when the capital turns over just once in the year.”

In order to avoid tearing this out of context Boffy needs to keep firmly in mind the preconception he started with.

But to get others to share that preconception and ignore the fact that there is vastly more fixed capital now then there was then will not be achieved by repeating the same texts to people who do not share Boffy’s preconception of it.

Trolling my ass. The only troll around here is asshat Boffy ( if that violates the rules of decorum that some think is essential to revolutionary discourse, to f##king bad. I’ve had enough of asshat Boffy throwing the term troll around without any repercussion).

Boffy’s misunderstanding of the role of fixed capital, and of Marx’s comprehension of the integral part fixed capital plays in a) the tendency for the rate of profit to fall b) the tendency for the overall rate of turnover of capital to decline IS TOTAL.

I recommend that those interested carefully study Marx’s Economic Manuscripts, 1857-1861 (Vols 28, 29, ) which include draft versions of Capital, Contribution to the Critique of Political Economy, and of course, the Grundrisse.

Here from the Grundrisse, and in a brilliant condensation, if Marx’s appreciation of the importance of fixed capital to the process of accumulation:

“The full development of capital, therefore, takes place — or capital has posited the mode of production corresponding to it — only when the means of labour has not only taken the economic form of fixed capital, but has also been suspended in its immediate form, and when fixed capital appears as a machine within the production process, opposite labour; and the entire production process appears as not subsumed under the direct skillfulness of the worker, but rather as the technological application of science. [It is,] hence, the tendency of capital to give production a scientific character; direct labour [is] reduced to a mere moment of this process. As with the transformation of value into capital, so does it appear in the further development of capital, that it presupposes a certain given historical development of the productive forces on one side — science too [is] among these productive forces — and, on the other, drives and forces them further onwards.”

Full development takes place only when… means of labor take the form of fixed capital, when fixed capital as a machine opposite, in opposition to labor, and the entire production process rather than being an extension of labor, makes labor an extension of the machine.

Now the domination of fixed capital is therefore the essential attribute of the full development, the real domination of capital. And what else is inherent, according to Marx, in the full development of capital– why the tendency for the rate of profit to fall. Only an asshat like Boffy could or would separate these two aspects of the impact of fixed capital, and actually place them in opposition to each other.

Now Marx might be wrong about fixed capital, and he might be wrong about the TFROP, but those are subjects for objective investigation, not distorting Marx’s own statements to make it appear that Marx did not thing TFROP was not the most important law of capital accumulation; and that fixed capital was not the critical factor in that tendency.

Its clear that you never were reading my posts closely, as witnessed by your general confusion and your confusion of a date in in a URL link, for a Chapter heading!

“But I do not share sartesian’s view that Boffy is a troll. I don’t think his behaviour is to attract attention. If it was trollish the standard advice of “don’t feed the trolls” would apply.”

Odd that you posted this comment actually prior to the post from Sartesian making that assertion. Obviously your thoughts are so attuned with his now that you know what he is going to write before his comments have even appeared!

I have in fact, never used abusive language to anyone in any posts. The specialist in that realm by a country mile is Sartesian and his sock puppets.

Your interpretation of Engels’ examples is again bizarre, and not what any other Marxist economist I know of would attribute to them, perhaps its you that should be considering why its you that has this different interpretation, but I will deal with that, in my fuller response, as and when I have time.

When Marx and Engels refer to the period of turnover they mean the time taken for the circulating capital to turn over, and that is again stated clearly in the quote I have given above, from Marx,

“Take, for example, a capital of 500, of which 100 is fixed capital, and let 10% of this wear out during one turnover of the circulating capital of 400.”

As Engels says in Chapter 4, it is the period of circulation of the CIRCULATING capital that determines the turnover time used in the calculation of the annual rate of profit, not the turnover of the fixed capital. In fact, for the reasons I have set out previously, in practice that comes down to the period of turnover of the VARIABLE capital. He says,

“To make the formula precise for the annual rate of profit, we must substitute the annual rate of surplus-value for the simple rate of surplus-value, that is, substitute S’ or s’n for s’. In other words, we must multiply the rate of surplus-value s’, or, what amounts to the same thing, the variable capital v contained in C, by n, the number of turnovers of this variable capital in one year. Thus we obtain p’ = s’n (v/C), which is the formula for the annual rate of profit.”

And, its precisely on this basis that the value of the advanced circulating capital increasingly varies from the value of the laid out circulating capital as the rate of turnover rises, as a consequence of rising social productivity. The annual rate of profit, as Marx and Engels set out is based upon the advanced capital for one turnover period, of say 6 weeks, to use the example Engels gives in Chapter 4, and that advanced capital is the value of the whole fixed capital, which as Marx explains must all be present, even though only its wear and tear enters the value of the production during that period, plus the value of the materials, and labour-power advanced during that 8 weeks. That is the annual rate of profit s x n/C. As they describe this is clearly different to the rate of profit on the laid out capital, p/k, or s/(c + v +), which is the cost of production, because the cost of production does NOT include the full value of fixed capital, but only its wear and tear, but does include all of the value of material consumed during the full year, plus the total of wages paid for the year, as opposed to just one turnover period of 6 weeks.

The reason that the annual rate of profit falls in Engels’ example II is that in I, the advanced capital is a higher value than the laid out capital (£8,000 as opposed to £5,000), whereas in II, the value of the advanced capital and the laid-out capital is the same at £15,000. The fallacy of your argument is demonstrated by comparing example II to III. In III, the amount of fixed capital rise markedly from that of II, and consequently an even larger sum of fixed capital is not turned over within the period of turnover of the circulating capital. Yet, you will notice here that, the annual rate of profit does not fall, it remains 20%, whilst the rate of profit/profit margin falls from 20% to 15.385%.

Of course, a higher proportion of fixed capital to circulating capital, in the advanced capital will cause the annual rate of profit to fall, and again if you had read my posts you would see that I do not deny that. The point, is as Marx and Engels set out, in these examples, that only actually results in a lower annual rate of profit, IF it does not simultaneously result in, a) a reduction in the unit value of the fixed capital employed, and b) a rise in the rate of turnover of the circulating capital. The whole point of Engels examples is to demonstrate that as the mass of fixed capital rises, its effect if to a) reduce the fixed capital, as a proportion of the total capital laid out, because higher productivity means the mass and value of material processed rises proportionately more, and b) to demonstrate that its effect is to cause the rate of turnover of the circulating capital to rise, so that less total capital is advanced to produce a given value of output, so that a given amount of capital advanced produces a greater mass of surplus value produced in the year, which causes the annual rate of profit to rise.

This consequence of increasing masses of fixed capital, and particularly of more technologically developed forms of fixed capital acting to RAISE the rate of turnover of capital is repeated throughout Capital and TOSV, and is summarised in Engels’ quote I gave above, where he says,

“The chief means of reducing the time of production is higher labour productivity, which is commonly called industrial progress.”

And continues in this vein in describing the way that the increased fixed capital, and technological development also facilitate a reduction not just in the production time, but also in the circulation time of capital,

“The chief means of reducing the time of circulation is improved communications. The last fifty years have brought about a revolution in this field, comparable only with the industrial revolution of the latter half of the 18th century. On land the macadamised road has been displaced by the railway, on sea the slow and irregular sailing vessel has been pushed into the background by the rapid and dependable steamboat line, and the entire globe is being girdled by telegraph wires. The Suez Canal has fully opened East Asia and Australia to steamer traffic. The time of circulation of a shipment of commodities to East Asia, at least twelve months in 1847 (cf. Buch II, S. 235 [English edition: Karl Marx, Capital, Vol. II, pp. 251-52. — Ed.]), has now been reduced to almost as many weeks. The two large centres of the crises of 1825-57, America and India, have been brought from 70 to 90 per cent nearer to the European industrial countries by this revolution in transport, and have thereby lost a good deal of their explosive nature. The period of turnover of the total world commerce has been reduced to the same extent, and the efficacy of the capital involved in it has been more than doubled or trebled. It goes without saying that this has not been without effect on the rate of profit.”

And, the consequence of this additional and better fixed capital is not to REDUCE the rate of turnover (INCREASE turnover time) as you bizarrely seem to believe, but as he says here, to REDUCE turnover time, and INCREASE the rate of turnover with a consequent effect of raising the annual rate of profit! And that is precisely what he sets out in the progression of his three examples in Chapter 13.

Suppose we extend Engels’ example to IV, where we have £20,000 of capital advanced, now divided into £12,000 of fixed capital, and £8,000 of circulating capital (materials and labour-power). The output as a result of the higher productivity created by this additional, and more advanced, fixed capital, rises to 100,000 pieces, and the rate of turnover of the circulating capital rises from 3.7 turnover to 8 turnover during the year. Taking Marx’s usual assumption that fixed capital loses 10% p.a. in wear and tear, the cost of production of these 100,000 pieces is £1200 wear and tear, plus 8 x £8,000 circulating capital = £64,000 = £65,200, or £0.652 per piece. If each piece sells at £0.702, that is a total profit of £5,000. That now gives an annual rate of profit of 5000/20000 = 25%, which is greater than the 20% annual rate of profit in III, and despite the higher value of fixed capital. But, the consequence of this change contrasting the rise in the annual rate of profit is again marked, when compared with the rate of profit/profit margin, which falls to 5/65 (rounded), or just 7.7%!

Once again, I’m afraid your own failure to read carefully or understand what Marx and Engels and others actually write has led you into error, and provided the evidence of that error.

This may help illustrate how firmly Boffy has to keep his preconceptions in mind in order to avoid understanding:

Here is the actual text Boffy quotes:

” It is evident that this rate of profit p/k will not coincide with the actual rate of profit p/C, mass of profit divided by total capital, unless k = C, that is, unless the capital is turned over in exactly one year.”

In order to misunderstand it Boffy needed to grasp his preconception so firmly that he immediately follows it with:

“This is never the case, because the fixed capital is never fully consumed in a year…”

“Did it not occur to you that your argument is completely undermined by the fact that Marx and Engels use the term “rate of profit” here even within the same paragraph to refer to two completely different definitions of that rate…”

Since one of those two rates was described as the “actual rate of profit” and it was not the one Boffy’s preconception could accept, it had to not occur to him that he was omitting the word “actual” to deceive himself.

Then instead of looking to Engels first case consistent with the existence of fixed capital that is never fully consumed in a year, Boffy’s preconceptions have to rivet his attention firmly on the third case where there is more advanced capital in the period of a year than invested capital. After correcting Engels slip, adding some assumptions invented entirely by Boffy “we would have” some calculation that I am not attempting to decipher but was sufficient to distract Boffy from the words “actual profit rate” and reassure him that he had successfully “read these chapters carefully” and his preconceptions were confirmed as “apparent” and would be seen by any “honest reader” who can follow Boffy’s mind in omitting the word “actual” correcting Engels slips, adding Boffy’s assumptions and snatching the words “actual profit rates” out of context when, in their “proper context” of Boffy’s preconceptions they are so obviously incongruent with what Boffy already KNEW, HAS ALWAYS KNOWN and has now once again TRIUMPHANTLY CONFIRMED Marx MUST have meant.

I am often struck by the heroic efforts that people unconsciously make to deceive themselves rather than others. In this case the sheer grim determination to not see is extraordinary.

“Since one of those two rates was described as the “actual rate of profit” and it was not the one Boffy’s preconception could accept, it had to not occur to him that he was omitting the word “actual” to deceive himself.”

Except that this “actual” rate of profit, is precisely what Engels defines in Chapter 4 as the annual rate of profit, which is precisely my point!

You then proceed to selectively cite my comment that ,

““This is never the case, because the fixed capital is never fully consumed in a year…”

Whilst apparently deliberately missing out the part of that sentence, which says,

“…whereas the circulating capital will turn over several times during the year, and the more productivity rises, the greater the rate of this turnover of the circulating capital will be!”

The fact that you selectively cite the first part of the sentence which you want to assert supports your contention, whilst omitting the second part of the sentence, which sets out precisely what is wrong with your argument, again gives evidence of your troll like behaviour. But, then given that you were able to post your comment referring to Sartesian’s comments that had not even at that time been published, I think we know exactly why your own troll like behaviour and his are so identical, don’t we?

If we take the other quote from Marx,

“The rate of profit is calculated on the total capital invested, but for a definite time, actually a year. The rate of profit is the ratio of the surplus-value, or profit, produced and realised in a year, to the total capital calculated in per cent. It is, therefore, not necessarily equal to a rate of profit calculated for the period of turnover of the invested capital rather than for a year. It is only if the capital is turned over exactly in one year that the two coincide.”

Here the term “actual rate of profit” is not used, but only the term “a rate of profit”. The term rate of profit is used generically, whilst in context both Marx and Engels distinguish between the rate of profit/profit margin, p/k, which is the total profit calculated on the laid-out capital for the year, i.e. the total cost of materials, wages, and wear and tear of fixed capital, as against the annual rate of profit, which is the total profit for the year as a proportion only of the capital advanced for one turnover period, i.e s x n/C, where a turnover period may be more than a year, or less than a year, depending upon how quickly the circulating capital turns over.

So, if the constant capital is comprised £10,000 fixed capital, and £5,000 materials, whilst wages amount to £2,000 with a 100% rate of surplus value, the rate of profit/profit margin will be different to the “actual” rate of profit, i.e annual rate of profit dependent upon the rate of turnover of the circulating capital.

If all this capital turns over just once during the year, the advanced capital is £17,000, the profit is £2,000 and the rate of profit and annual rate of profit are both equal to 2/17 = 11.76%.

If the fixed capital wears out at a rate of £1,000 p.a. whilst the circulating capital turns over once during the year, the advanced capital remains £17,000, because all of the value of fixed capital must be advanced for production to take place, even though not all this value entres the cost of production. So, the annual rate of profit remains 11.76%. But, the rate of profit/profit margin is calculated on the cost of production (c + v + d), or k. It is £1,000 wear and tear, £5,000 materials, £2,000 wages which gives a rate of profit of 2/8 or 25%. Here it can be seen, that contrary to what you previously claimed this longer period of turnover of the fixed capital has the effect not of reducing the rate of profit/profit margin, but of increasing it, precisely because the rate of profit calculated on the cost of production p/k, is lower than the advanced capital, by the amount of the residual value of the fixed capital, not turned over.

If, we extend this further in the same way that Engels does, and assume that, in fact, the £5,000 of materials, and £2,000 of wages turns over several times during the year, as a result of fixed capital increasing the productivity of labour, and thereby reducing production time, and circulation time, in the way that Engels describes, we might have this circulating capital turning over 5 times during the year.

In that case, the advanced fixed capital remains £10,000, the advanced materials remains £5,000, and wages remains £2,000. But, now, the circulating capital here turns over 5 times, so that whilst the £2,000 of variable capital produces the same £2,000 of surplus value in a turnover period, there are now 5 turnover periods during the year, so that the total surplus is s x n = s x 5, giving S = £10,000.

Using Engels formula for the calculation of the annual rate of profit, it is then s x n = £10,000/C, the total advanced capital for one turnover period = £10,000 fixed capital, £5,000 materials, £2000 wages. That gives an annual rate of profit of 10,000/17000 = 58.82%, significantly higher than the original 11.76%.

If we then calculate the rate of profit/profit margin, it is £10,000, with a cost of production of £1,000 wear and tear, £25,000 materials, and £10,000 wages = £36,000, giving a rate of profit/profit margin of 10/36 = 27.7%.

If we take the circulating capital of £5,000 materials and £2,000 of wages as the total laid out-capital, and still assume 5 turnovers, we would have advanced:

Fixed Capital £10,000,

Materials £1,000

Wages £400

The variable capital produces £400 of profit per turnover period, which is equal to £2,000 p.a. giving an annual rate of profit of 2,000/11400 = 17.54%.

Nor do you need to take my word for it that this is the correct method calculating the annual “actual” rate of profit as distinct from the rate of profit, because as well as marx using that method in Chapter 9, Engels uses it extensively in Chapter 4. It is only you that interprets it in your own bizarre fashion. Engels says,

“To single out the effect of the turnover of total capital on the rate of profit we must assume all other conditions of the capitals to be compared as equal. Aside from the rate of surplus-value and the working-day it is also notably the per cent composition which we must assume to be the same. Now let us take a capital A composed of 80c + 20v = 100 C, which makes two turnovers yearly at a rate of surplus-value of 100%. The annual product is then:

160c + 40v + 40s. However, to determine the rate of profit we do not calculate the 40s on the turned-over capital-value of 200, but on the advanced capital of 100, and thus obtain p’ = 40%.

Now let us compare this with a capital B = 160c + 40v = 200 C, which has the same rate of surplus-value of 100%, but which is turned over only once a year. The annual product of this capital is, therefore, the same as that of A:

160c + 40v + 40s. But this time the 40s are to be calculated on an advance of capital amounting to 200, which yields a rate of profit of only 20%, or one-half that of A.

We find, then, that for capitals with an equal per cent composition, with equal rates of surplus-value and equal working-days, the rates of profit of the two capitals are related inversely as their periods of turnover. If either the composition, the rates of surplus-value, the working-day, or the wages, are unequal in the two compared cases, this would naturally produce further differences in the rates of profit; but these are independent of the turnover and, for this reason, do not concern us at this point. They have already been discussed in Chapter III.

The direct effect of a reduced period of turnover on the production of surplus-value, and consequently of profit, consists of an increased efficiency imparted thereby to the variable portion of capital, as shown in Book II, Chapter XVI, “The Turnover of Variable Capital”. This chapter demonstrated that a variable capital of 500 turned over ten times a year produces as much surplus-value in this time as a variable capital of 5,000 with the same rate of surplus-value and the same wages, turned over just once a year.

Take capital I, consisting of 10,000 fixed capital whose annual depreciation is 10% = 1,000, of 500 circulating constant and 500 variable capital. Let the variable capital turn over ten times per year at a 100% rate of surplus-value. For the sake of simplicity we assume in all the following examples that the circulating constant capital is turned over in the same time as the variable, which is generally the case in practice. Then the product of one such period of turnover will be:

Now let us take capital II: 9,000 fixed capital, 1,000 annual wear and tear, 1,000 circulating constant capital, 1,000 variable capital, 100% rate of surplus-value, 5 turnovers of variable capital per year. Then the product of each of the turnovers of the variable capital will be:

Further, take capital III with no fixed capital, 6,000 circulating constant capital and 5,000 variable capital. Let there be one turnover per year at a 100% rate of surplus-value. Then the total annual product is:

In all the three cases we therefore have the same annual quantity of surplus-value = 5,000, and, since the total capital is likewise equal in all three cases, namely = 11,000, also the same rate of profit of 45 5/11%.

But should capital I have only 5 instead of 10 turnovers of its variable part per year, the result would be different. The product of one turnover would then be:

The careful reader will note that Boffy never attempts to provide a concrete analysis of a concrete condition of capitalism– i.e. his claim that the TFROP no longer applies because of the growth of the service sector.

Whatever disagreements one might have with Michael, or Ucanbe, or Kliman, at least they develop a concrete analysis based on actual actions and directions in capitalism to establish and explain their theoretical treatments.

The careful reader will also note that in denying the TFROP, Boffy is denying in fact precisely why Marx called it the most important law of capitalist accumulation: that it established the limit to the creation of wealth under capitalism; that in fact capital accumulation becomes the obstacle to profit; and of course, profitability become the opposition to capitalist expansion.

In Boffy’s world, on planet Boffy, capital goes on without limits, troubled only by the occasional “financial crisis” invariably made worse by the thickheaded politicians of capital who fail to avail themselves of the advise of…why Boffy himself.

” to determine the rate of profit we do not calculate the 40s on the turned-over capital-value of 200, but on the advanced capital of 100, and thus obtain p’ = 40%.”

Let’s calculate the rate of profit margin, on these further examples, in contrast to their annual rate of profit of 45 5/11%. But assuming, in each case, they turn over 10 times a year.

In example I, C is £11,000 made up of £10,000 fixed capital, and £1,000 of advanced circulating capital, i.e. £500 of materials and £500 of wages advanced for a turnover period of 1/10 of a year, i.e. 5 weeks in a 50 week year.

C, the capital advanced for one turnover period is again £11,000. But assuming 10 turnovers, that amounts to a laid out capital of £1,000 wear and tear, £10,000 materials, £10,000 wages = £21,000, and surplus value of £10,000 giving a rate of profit of 47.6%.

But, the annual rate of profit here is 10/11 = 90.91%.

If we take example III,

We again have advanced capital of £11,000, now comprised

“6,000c + 5,000v” with no fixed capital.

The laid out capital comprises nothing for wear and tear, as there is no fixed capital, but now amounts to £60,000 for materials and £60,000 for wages = £120,000. The surplus value produced in the year is £60,000, which gives a rate of profit/profit margin of 50%.

The annual rate of profit is 60/11 = 545.45%.

And, its because productivity has been rising by around 2% p.a. since WWII, which, as Engels says is also a proxy for the rise in the rate of turnover of capital, which means that the rate of turnover today is around 3 times what it was in the 1950’s, and has a consequent effect on raising the annual rate of profit since that time.

1. Explaining how WordPress comments sometimes appear out of chronological order involves explanation of interactions between database hash tables and the caches used in very large scale implementations like WordPress. But this requires a preliminary conception of the distinction between essence and appearance and between what one believes and actual reality. I will not attempt this with someone who has now convinced themselves that I do not exist and is nevertheless continuing a lengthy attempt to convince me of something.

2. Following is said deliberately with restraint. It would be irresponsible for me to continue arguing with Boffy. Anyone who is convinced even briefly that they have been arguing at length with somebody that does not exist and who is really someone else that they would not argue with needs to discuss the implications of having believed that with someone competent to help them deal with it. First they need to convince themselves that their belief was wrong so that they would seek that help. Obviously I cannot do that and anything I might say would only exacerbate and delay seeking help for what might be a minor cognitive problem or could be more serious. I am not competent to help further and could only do damage by trying.

To summarise your comment here in layman’s terms. Firstly, you were found out, and could provide no rational explanation as to how you could have known the contents of Sartesian’s post, which whatever its timestamp had not appeared before your own comment was posted.

Secondly, even with your normal trolling behaviour of misrepresenting what other people have said, and seeking out any ambiguity so as to avoid having to concede that your original argument was false, which would mean cutting short the pointless heated debate, which is the raison d’etre of all trolls, you were unable to deny the reality of the quotes and examples provided by Engels, which clearly proved your assertions wrong, without even more blatantly exposing your nature as a troll, and exposing what has been said before, which is that when it comes to understanding even basic Marxist concepts you do not understand your arse from your elbow.

So, in typical troll-like fashion you excuse yourself from having to try to square the circle, or else doing what any normal person would do, which is to accept that their initial position was wrong, and do so by abusing your opponent, and implying some mental disorder. The only people potentially with such a mental disorder are the trolls who engage in such flame wars and pointless debate purely for that purpose rather than to further knowledge, through comradely debate.

You have clearly shown yourself to be in that camp of sock puppets, which means that I can avoid wasting any further time responding to your comments.

“Odd that you posted this comment actually prior to the post from Sartesian making that assertion. Obviously your thoughts are so attuned with his now that you know what he is going to write before his comments have even appeared!”

Even odder that the conspiracy between sartesian and me as we huddle over the simulation models sartesian cunningly pretended he has has never used to exchange tips on trolling techniues was revealed in this particular way. Not only did WordPress acidentally reveal the conspiracy by publishing my comment above sartesian’s thus alerting Boffy to our plotting. Worse still WordPress has tried to cover it up by making the timestamp on my comment later than the comment from sartesian I was pretending to respond to!

Fortunately Boffy’s finely tuned preconceptions are constantly on the alert to ignore such things that might otherwise intrude on his revelations.

Not bothering to even skim the rest of that one at least until after a good night’s sleep in the hope of maintaining my restraint or maintaining silence if that still seems too difficult.

And, given that WordPress DID publish Sartesian’s comment above yours, i.e. it appeared prior to yours, exactly how are you explaining having seen it prior to it being published, in order to be able to respond to it?

The fact of a prior timestamp is rather irrelevant isn’t it, compared to the point it is actually published so as to be seen, so that anyone could respond to it!

I don’t know if anyone else here is familiar with Rosa Lichtenstein, one person anti-Hegel hit squad, but she’s made a career out of parsing the commas in the English translation of Marx’s preface to the 2nd edition of Volume 1 of Capital, attempting to “prove” that Marx had abandoned his earlier Hegelian “slant” when he wrote Capital.

Boffy is the Rosa Lichtenstein of the TFROP.

Arguing with either one is pointless as neither will ever undertake an examination in the concrete. Couple of liberals.